Tuesday, July 27, 2010

The "Austerity" Meme Proliferates

In Four Rules to Remember in the Age of Austerity, Matthew Lynn perpetuates the myth that any sort of general austerity is in, or known to be coming in, to existence outside of small countries such as Ireland. He writes on Bloomberg.com today as follows:

One thing has become clear during the sovereign-debt crisis: Governments everywhere are going to be cutting their spending savagely over the next five years.

They may do it under the direction of the International Monetary Fund, like Greece. Or voluntarily, like the U.K. and Germany.

How real is this "savage" spending cut going to be for Britain, for example?

From the horse's mouth, http://www.ukpublicspending.co.uk/.

(Please click on the link, as it is mostly graphs and charts rather than text to copy.)

As you can see, projected total governmental spending is slated to rise from 576 B to 681 B pounds in only 3 years. Net public debt will be nearly doubling in those 3 years.

We shall see what governments do in Britain. The projections for a huge 3-year expenditure rise from 2008-11, far outpacing alleged price inflation rates, suggest that in reality, there will be no governmental austerity. Perhaps there will be little or no growth in total governmental spending for a brief period; only time will tell. There will be no savagery under currently-anticipated conditions.

A family earning $50,000 a year and spending $70,000/year that wants to avoid bankruptcy may cut spending by half to $35,000 per year. That's an example of austerity.

Because Big Government and Big Finance are currently joined at the hip in the U. K. and the U. S., the increasingly concentrated media, and especially most of the mainstream financial media, is engaged in a concerted effort to sell the ratification of the expansion of the state and the maintenance of the current price level to the public. Thus they will tell you that an obese government is engaging in austerity.

These are the same people who sold the public in the second half of the 1990s that a New Era in investing was underway.

People are better off focusing on facts and then drawing their own conclusions than listening to commentators who are paid by the vested interests whose interests are most likely not in your best interest.

One other point. Some in the media and blogosphere are conflating the school of economics founded by a man from Vienna (von Mises, "Austrian" economics) with "austerity", via the neologism "Austerians". This is about as fair and sensible as taking the prior President's last name and insulting him because of its scatological connotation. Calls for limited governmental involvement in money creation and society in general from various Austrian school economists have been consistently voiced for years. This (among other reasons) differentiates them from tactical converts to "austerity" who may be monetarists, neoclassical economists or any other school (or no school at all).

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