Austerians Versus Keynesians

Tyler Durden's picture


The battle between the 'Austerians' and the 'Keynesians' remains front-and-center in Europe (and elsewhere for that matter). As Sean Corrigan noted recently Frau Merkel is sticking to the only strategy that she can - of insisting that future aid is tied to the construction of budgetary oversight, reduced national sovereignty, and the implementation of labor market reforms - paying lip-service to her nation's unwillingness to pay for what they view as their counterparts' indolence or improvidence. How long this can last is an open guess. Stratfor's Kristen Cooper provides a succinct clip of the state of European Austerity (seeing little progress in reality and in fact a pull-back by Italy and France at the realization that their electorate won't be happy!!). Perhaps, as Corrigan notes, the real lesson is to be had from the Baltics, where 'drastic devaluation' has accompanied genuine 'austerity' - and as a result of this bitter medicine, they are now growing private GDP. As Corrigan sums up, [Austerity as it is being implemented in Europe] is aimed not so much at reinvigorating individual endeavour as at minimizing the reduction in the reach and importance of the state (satisfying neither the Keynesians nor the Austrians) and that is what is self-defeating about such measures.

Stratfor's Kristen Cooper sets the stage for the Effectiveness of Austerity in Europe...



and Sean Corrigan, of Diapason Commodities provides more color on the 'real' Austerity debate:


Perhaps the real lesson is to be had from the Baltics where drastic ‘internal devaluation’ has accompanied genuine ‘austerity’ in the form of government cut backs stretching from 10% in Estonia, to almost 20% in Lithuania, and near 40% peak?to?trough in Latvia. As a result, of the bitter medicine swallowed there, private GDP is now on the rise, with growth rates of 0.9%, 4.9%, and 3.9% annualized over the past six months in Estonia, Latvia, and Lithuania, respectively.

Ireland and Portugal, to give them credit, have seen something similar occur, with the state’s slice of the pie shrinking 13% in the first and 15% in the second, but Spain has barely managed a 5% cumulative cut and Italy is already well on its way back to unchanged from the peak, despite all Mario Monti’s protestation about his performance in trimming the excesses of the past.

‘Austerity’ which not only forces those who have become dependent upon the state to go out and seek other ways of making a living, but confiscates more of their and their private sector neighbour’s earnings when they do so, by imposing swingeing increases in taxes (and so pushing down marginal returns to labour and capital at just the wrong moment), is, as we have said before, a very luxurious form of achieving budget balance, indeed.

Aimed, as it is, not so much at reinvigorating individual endeavour as at minimising the reduction in the reach and importance of the state, this is truly a policy prescription to satisfy neither those who would apply Keynes’ soothing nostrums, nor Austria’s much tougher love.

THAT is what is ’self?defeating’ about such measures, not the simple fact of trying at last to live within one’s means and to re?orient one’s activities more to wealth creation than wealth destruction ? as we fear the unfortunate citoyens de L’Hexagon—the French—are about to discover under their newly installed, traditional left?wing, tax?and?spend, New Dealer leadership.

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Thu, 06/21/2012 - 15:01 | 2548232 veyron
veyron's picture

Where's Krugman the Keynesian Prostrator?

Thu, 06/21/2012 - 15:19 | 2548320 kralizec
kralizec's picture

Prostrating before his Lord and Master..the pimp with the whip.

Thu, 06/21/2012 - 15:41 | 2548392 Aziz
Aziz's picture

I don't want Keynesianism or austerity during this economic depression. Cutting spending and increasing taxes in a state-dependent economy without a free market is just a recipe for disaster. More and bigger government and more debt is also a recipe for disaster in the long run.

I want a free market. 

Thu, 06/21/2012 - 17:48 | 2548918 malikai
malikai's picture

The logic(?) of cutting spending and increasing taxes really speaks volumes to why we are here.

Thu, 06/21/2012 - 15:28 | 2548339 Matt
Matt's picture

Has anyone tried cutting spending and cutting (rather than increasing) taxes? 

Thu, 06/21/2012 - 16:19 | 2548608 OneTinSoldier66
OneTinSoldier66's picture

Has anyone tried defaulting on and liquidating debt that cannot be repaid, and using real money instead of state issued debt based paper fiat money?

Thu, 06/21/2012 - 19:27 | 2549120 Stimulati
Stimulati's picture

Here is Krugman's response

And I'll add that it is incorrect to say that Spain, Italy, and Portugal are following Keynesian policies.  I think the first thing Keynes would advise them to do is ditch the Euro which is shackling them like the gold standard did back in the Great Depression.

Thu, 06/21/2012 - 15:06 | 2548248 CommunityStandard
CommunityStandard's picture

But... but... France is not Spain.

Thu, 06/21/2012 - 15:07 | 2548254 thatonekid13
thatonekid13's picture

Wow, she is soooooo hot. 

Thu, 06/21/2012 - 15:18 | 2548317 kralizec
kralizec's picture

She wants you, go get her!

Thu, 06/21/2012 - 15:06 | 2548255 financial apoca...
financial apocalyptic contagion's picture

i thought it was Austrians for a second

Wouldve kicked keynesian ass

Thu, 06/21/2012 - 15:08 | 2548259 midgetrannyporn
midgetrannyporn's picture

Perhaps the real lesson is to be had from the Baltics where drastic ‘internal devaluation’ has accompanied genuine ‘austerity’ in the form of government cut backs...

Thu, 06/21/2012 - 15:08 | 2548263 catacl1sm
catacl1sm's picture

Can someone send this to Oblamba?

Thu, 06/21/2012 - 15:11 | 2548272 carbonmutant
carbonmutant's picture

The real question is, "How long will it take for the Greeks to discover that they can build a separate economy from the EU...?"

Once they discover that, Germany and the Troika loses all control.


Thu, 06/21/2012 - 15:25 | 2548333 smb12321
smb12321's picture

You don't get it.  To most Greeks (and Europeans) the "economy" consists of activity by the State - not the private sector.  And in a sense they are right since in Europe the State is now the dominant economic player.   Thus, austerity is painful. As the #1 employer, cutbacks hurt those on the dole.  I maintain, as Tyler alluded, that the reason austerity continues to be bashed is that it is a very effective tool for reducing the size and scope of government, something anathema to social welfare state advocates.  

Thu, 06/21/2012 - 16:14 | 2548586 carbonmutant
carbonmutant's picture


Thu, 06/21/2012 - 19:56 | 2549232 ThirdWorldDude
ThirdWorldDude's picture

I second your thoughts, but have in mind that Iceland is not a member of the EU. The bitter truth here in Europe is that a supranational Leviathan has been gradually taking over all aspects of life ever since the Maastricht Treaty of '92, by affecting domains which are non-of-their-goddamn-business and by extensive nonsensical regulations concerning markets and trade. In its turn that process required new muppets to be employed as gubbermint workers applying and overseeing each and every of the BS EU directives (measuring length, weight and curvature of cucumbers as an example), et voila, we have a common growth of GDP without actually producing something.

Nevertheless, there have always been sceptical voices, but the eurotards managed to convince the sheeple that those were deluded radical nationalists who refused to live peacefully in the union of "liberté, égalité, fraternité". The truth could not possibly be further away and Europeans are just recently beginning to discover the Great Lie - there aren't any unicorns in Brussels, but it is Caligula's horse appointed as a Commissioner!

They still have a chance to set things straight in their respective countries again, but they can only do so by saying a hearthy "thank you and fuck you" to Brussels and undergoing a painful internal restructuring with many public parasitic jobs lost and a few dosen criminals prosecuted. Unfortunately those criminals are the nations' "leaders", sitting in the pockets of global central bankers and unable to address any interests incompatible with their own wallets.

Now that push slowly comes to shove, I'm afraid restructuring will be made in the oldfashioned way, with pitchforks, ropes and guillotines. I sincerely hope this time the mob won't forget the bankers!

Thu, 06/21/2012 - 16:21 | 2548621 OneTinSoldier66
OneTinSoldier66's picture

Anything that is unsustainable eventually comes to an end, one way or another.

Thu, 06/21/2012 - 16:32 | 2548666 El Yunque
El Yunque's picture

In our case, (The U.S.) it doesn't really reduce the size of government, but it damn changes it's scope, if not increasing it.

When you shift what the government does to the private sector, but it's still being paid for publicly, and fought over on the ant hill in the Beltway, particularly when it's mostly a focus on military and DHS spending, you get a smaller and shrinking circle of haves feeding at our trough producing insane profits for a few, and little to nothing for the rest.

Add deregulation in the name of supposedly "free markets," no firewall between retail and investment banking that feeds on it's own teats with ZIRP and the eternal inside access of those big fianancial socialized loss / privatized gain wealth eating machines and we end up here: Cheerleading austerity that really only benefits the few already suffering lock jaw on a teat.

Once it's all said and done, and we're mostly done with bashing social welfare, perhaps we'll all come to understand that social welfare is nothing more than spreading cash around even amongst the most vile of human beings produces one great outcome.

The oppurtunity for any and all over us to have more swings at making money part way with the suckers. When the state is nothing more than planet full of private interests with little to no accountability to the broader private sector of have nots, storm clouds eventually appear on the horizon.

We can force more of the little people off the public dole, but the fact is, one day when they're hungry and out of options, someone will lead a pitchfork and torch rally and wonder around tossing necks under the blade.

I look at it this way: If a large group of have nots can be made docile with a smattering of hand-outs, getting fat on a worn out devan in a double wide playing on their XBox, that's one less agitator with a torch or a pitchfork.

And ultimately, austerity does little but move government largess into the hands that really understand how to power and own it, while the fooled masses cheer the loss of their voice in the whole thing by buying into the bullshit, while swilling a beer and making sure the gubmint doesn't find that stash of automatic weapons.

Great plans indeed.

Thu, 06/21/2012 - 22:29 | 2549663 smb12321
smb12321's picture

I didn't realize the US had practiced austerity (except for  and eventual $37 billion out of a budget of $3,700 billion).   BFD.  The question has always been, "Who can best provide for human needs?"  The State with its experts and obsessions with uniformity and conformity above all or a system of choice with losers, winners and rewards.  State planning is inherently inefficient, mismanaged and bankrupt since it's based on political and not economic decisions.  Tyler said once that no country every had such prosperity with so small a State as the US. 

I agree that switching payment to private companies is not the answer.  Ron Paul always said the crux of the problem was our view of the role of government. As long as voters think the purpose of the State is to "take care of folks" then nothing will change.

Fri, 06/22/2012 - 01:48 | 2549987 El Yunque
El Yunque's picture

I personally don't know anyone that thinks it's the states job to "take care of folks."

Thu, 06/21/2012 - 15:11 | 2548286 reader2010
reader2010's picture

Both are whores.

Thu, 06/21/2012 - 15:13 | 2548287 falak pema
falak pema's picture

The french cannot have their cake and eat it; they can't have Germany agreeing to going joint and several on financial fiscal integration and NOT agree to delegate more national sovereignty to Europe. Its a no-no. Either its a sincere union or its not! THe US went through the same process. This process of integration would require a true Euro parliament.



Thu, 06/21/2012 - 15:28 | 2548341 smb12321
smb12321's picture

They got balls though.  What they are essentially asking is that Germany underwrite the cost of lowering the retirement age from 62 to 60.  All Germany has to do is come up with a few hundred billion to temporarily backstop some banks on the continent.  That will make everyone suddenly productive and wealthy!

Thu, 06/21/2012 - 16:36 | 2548427 Bunga Bunga
Bunga Bunga's picture

Germany started their own austerity program 10 years ago, when they cut social benefits, increased retirement age to 67, created a low wage sector and even have no minimum wage, while other EURO-countries did the opposite funded by new government debt.

To the credit of Merkel, she does not want to allow moral hazard happening. It's a very legitimate approach. On the other hand she wants to give up national sovereignty by ratifying ESM, which turns budgetary sovereignty from German parliament over to the EU indefinitely (there is no bail-out clause in the treaty).

Thu, 06/21/2012 - 23:59 | 2549852 arizona11912
arizona11912's picture

@ falak pema,


Members of the EU Commission (the future overseers of all Euro-zone fiscal budgets) have made it no secret that they seek a political union.

Fri, 06/22/2012 - 05:41 | 2550116 falak pema
falak pema's picture

EU commission has no political power per se, only what elected national governments decide to give them. Do you read what is printed in these threads? This is a repeat statement. 

Political Union will NEVER be possible in Europe without the people's consultation in EVERY NATION STATE OF EUROPE.

Right now European nations are fighting a currency/financial war not of their making; provoked by the criminal runaway actions of WS/City financial Oligarchs who run the world and who are in cahoots with the banking lobby of European nations; private sector carbon copy agents of spreading this disease in Euroland since 2008, when nothing was done to curtail their mad actions. And the elected governments of Euro nations are impotent at fighting it; witness the Peripherals! Its every man for himself in this crazy run to bottom. So its crisis of civilization. Beyond the control of elected people. Enjoy your ride on the Titanic. I don't want to pontificate on whose is dirtier than whom, just on facts; on cause and effect. The people of first world will be the poorer for it whatever the outcome. 


Thu, 06/21/2012 - 15:11 | 2548289 SamAdams1234
SamAdams1234's picture

Reset in 10...9....8...7....6....5.....4....3....2........

Thu, 06/21/2012 - 15:25 | 2548332 Dr. Richard Head
Dr. Richard Head's picture

...............................................still waiting.....................................................................

Thu, 06/21/2012 - 15:12 | 2548295 potlatch
potlatch's picture

I just wish Stratfor had the nerve to use one of their actual analysts and/or operators to do the newscast.  So typical: throw a chick up there. 


I wanna see some twisted ex-Special Forces history and civil war re-enactor who ALWAYS demands to play Sherman during the March to Atlanta, with a gin-blossomed nose, and always fumbling with maps and pointers.....


And a parrot.  yes.  A talking parrot.


Stratfor needs to cut the amateur hour bullshit: this was "infoz" back in the 90's.

Come on.  Gimmie the bitter ex-Special Forces alkie to give me the low-down with a talking parrot dammit!

Thu, 06/21/2012 - 15:33 | 2548362 GMadScientist
GMadScientist's picture

With an overblown "Foghorn Leghorn" accent and a riding crop for indicating things on charts.



Thu, 06/21/2012 - 16:36 | 2548680 potlatch
potlatch's picture

needs an awkward facial tic too.  Something with... one eye?  Or maybe an uncotrollable Joker smile that pops in and out?

Fri, 06/22/2012 - 04:45 | 2550098 ThirdWorldDude
ThirdWorldDude's picture

Google "Alan Ford", the TNT gang's leader - Nr. One is the man you're looking for. He has a talking parrot as well   :)

Thu, 06/21/2012 - 15:35 | 2548386 potlatch
Thu, 06/21/2012 - 15:31 | 2548352 GMadScientist
GMadScientist's picture

-> Budgetary oversight of a smoking crater leaves a bit to be desired (and paid back too).

-> Those meddling kids had it comin'!

Thu, 06/21/2012 - 15:53 | 2548474 JR
JR's picture

Stratfor (and owner George Friedman), as most economic observers know, does not do analysis…it does opinion. And the opinions are always favoring the banker establishment, coloring every map of the Middle East to favor Israeli interests, grand-standing every identification of Iranian “dangers,” and now, positioning itself as a European economic “expert.” Surely the revelations of the major sponsors, members and contributors to Stratfor (such as Goldman Sachs) are evidence of its mission: status quo, empire.

It’s hard to forget Friedman’s advice to Obama strategists on Iran, calling for Obama to bomb Iran before the 2012 election as a winning re-election position.

Thu, 06/21/2012 - 16:07 | 2548549 proLiberty
proLiberty's picture

The world of Keyenes is inside out and upside down from economic reality.   It is beyond being morally bankrupt and is simply evil for how his theory presumes that government should (and does) have a legitmate claim on all assets and future income of its citizens.    It is the grandest scheme of embezzeling in all human history.


Thu, 06/21/2012 - 16:25 | 2548628 OneTinSoldier66
OneTinSoldier66's picture

Keynes may have died a long time ago, but I for one am here to bury him!

Thu, 06/21/2012 - 16:31 | 2548662 Tirpitz
Tirpitz's picture

Keynes mainly stated that the government should save some dough in good times, and spend it wisely when everyone else is retrenching. What would be wrong with that?

Thu, 06/21/2012 - 16:54 | 2548736 OneTinSoldier66
OneTinSoldier66's picture

What's wrong with that is... it's just a theory! I live my life based upon reality. My Government does not.

Thu, 06/21/2012 - 16:58 | 2548772 snblitz
snblitz's picture

"Keynes mainly stated..."

Keynes stated quite a lot more.  Much which was self-contradictory.  And some which seemed to have no meaning whatsoever.

Thu, 06/21/2012 - 18:28 | 2549001 johnberesfordti...
johnberesfordtiptonjr's picture


Thu, 06/21/2012 - 16:29 | 2548637 Tirpitz
Tirpitz's picture

"Perhaps the real lesson is to be had from the Baltics where drastic ‘internal devaluation’ has accompanied genuine ‘austerity’ in the form of government cut backs stretching from 10% in Estonia, to almost 20% in Lithuania, and near 40% peak?to?trough in Latvia. As a result, of the bitter medicine swallowed there, private GDP is now on the rise, with growth rates of 0.9%, 4.9%, and 3.9% annualized over the past six months in Estonia, Latvia, and Lithuania, respectively."

So bailing out the leveraged real estate speculators in the Baltic countries and throwing the working class under the bus is the true recipe for success? And, yes, at a 5% growth rate - for a short half year - after 20 and more percent of declines it takes a good while to get back to pre-crisis levels. If Sweden and the entire EU wouldn't have taken in the Baltic workforce, those folks would have starved in the streets.

The better and fairer way out of this misery is to destroy the bad debt, hold the reckless creditors responsible for a change, and give the people room to breathe. They didn't profit from the manufactured boom-bust-cycles in the least.

Thu, 06/21/2012 - 16:41 | 2548706 JR
JR's picture

Thanks for the reality, the truth, Tirpitz.

Bailout is not in the interests of the German or Baltic or American taxpayers but is in the interests of the bankers who want the taxpayers to fix all of Europe’s problems so the bankers and speculators can have a euro zone and control Europe. This way it’s settled, i.e., give in to the bankers, don’t fight it and everything will be OK.

Thu, 06/21/2012 - 16:53 | 2548753 MoreNails
MoreNails's picture

Yup. I'd be suprised if any of the guys touting the Baltic "success" had ever set foot there. Amazing growth on paper indeed... In Lithuania, austerity was induced by the government's sheer inability to borrow anything on the market, while nobody wanted the IMF to come in and have a look under the dirty sheets. The country is still receiving EU money, which is basically stolen as soon as it's wired by the happy few in "feasability studies". All those who could leave, left, and are sending money home from abroad. Public servants (you know, teachers, police, all this useless overhead) are paid in dirt. Hence corruption. Individuals are overindebted, as "free-market principles" led to a regulatory void, and banks were all too happy to offer 40-year floating-rate mortgages in Euros five years ago. The same noble principles still forbid the government from passing a personal bankruptcy law, and I'm sure banks' lobbying has nothing to do with it.

You want austerity ? Let everyone suffer then. But that will never happen, and all the libertarian ideology will just be used by the fat cats to bleed the hopeful suckers a little bit more.

Thu, 06/21/2012 - 18:26 | 2548997 johnberesfordti...
johnberesfordtiptonjr's picture

You, Sir, are 1000% correct... Libertarianism... brought to you by the "Party of Plenty;" you'd be a fool not to subscribe.

Thu, 06/21/2012 - 16:53 | 2548754 dark pools of soros
dark pools of soros's picture

Tyler, when will ZH hire Kristen to do some video clips?  She has that 'speak doom to the zombies' delivery for what awaits in 2013

Thu, 06/21/2012 - 17:29 | 2548853 W07FP4X
W07FP4X's picture

I'm not sure what austerity these idiots are referring to? There hasn't been any austerity to date, unless of course you consider the private sector. There have been 0 Layoffs in the European public sector.  Europe has swindled the world with its Euro ponzi scheme.  All the smart money is gone (hence the negative Swiss 5 year).  Unwinding 1.2 Quadrillion in derivatives will burn every paper asset around the globe (including your money market).  Learn to farm.

Thu, 06/21/2012 - 19:23 | 2549136 W10321303
W10321303's picture

As the 'Prussian' pseudo-intellectuals scramble to find the weakest scape-goats.

Patriot Act - What's that?

Glass Steigal - What's that?

VOOOODOOOOOO Economics - What's that?

Housing Bubble - What's that?

Three Wars, financed with DEBT bonds - What's that?

The 'Prussians' are moral and intellectual COWARDS.......

Fri, 06/22/2012 - 04:03 | 2550071 juujuuuujj
juujuuuujj's picture

- Austerians choose to starve themselves to satisfy banks.

- Keynesians choose to take more debt to satisfy banks.

- The Austerian outcome: demographic breakdown, less revenue, a crap budget and wasteland economy.

- The Keynesian outcome: more debt, a crap budget and perpetual zombie economy.

There should be a third category of countries - those that screw the banks and reject their debt.

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