SlayerRondo said:
Economics is demand-driven, after all. If you "let" General Motors go bust, for instance, that's a ripple effect that could put millions out of work, which means millions of people scraping by and buying only the bare essentials; not buying cars, not buying houses, not buying TVs or movie tickets or good restaurant meals. This creates a further knock-on effect as other car companies now have to contract. Losing jobs can be painfull for the economy but also has long term positive effects. General Motors was a failure and was a waste of economic resources that needed to be freed up for better existing companies and new entrants to the market. And the other upside is that the economy does not accumulate losers like General Motors who create a potentially more dangerous situation. If one general motors going out of business is bad imagine ten going out of business at once? The government will reach a point where so many companies fail because they have been propped up to long by the government they can no longer stop what will then be a real depression. Supply side economics doesn't solve this because no matter how easy you make investment, people are NOT going to invest if there's no demand for a product or service due to the depressed economy. They'll invest in safe things like financial instruments or Sovereign Debt (which is why, despite effectively negative shadow interest rates on Treasury bonds, people still buy 'em because it's safer than plugging it into an auto startup). Even in depressed economies there is a demand for goods and services that people will be willing to invest resources into producing to meets these demands and possibly seek out new markets oversea's which is something America desperately needs given it's trade deficits since the mid 70's. There might also be more incentive to invest in auto start ups if barriers to new entrants were decreased and companies like general motors were allowed to fail freeing up market space. This is not to say that supply side is useless: an economy with low barriers to investment and entrepreneurship is going to be more nimble than an economy with high barriers, but when you have a slump, money in people's pockets is what unsticks the system. Governments all over the world are scared of "handouts", however, or stuck in pigheaded belt-tightening loops which simply make the process worse (lay off government workers and guess what? That's less people who can buy consumer goods, so less demand for capital investment from companies providing consumer goods, etc. The lower taxes in no way make up for that, especially because in a lot of these cases those taxes simply are diverted into debt payment and not actually lowered). If governments all round the world are afraid of handouts that's the first I'm hearing of it. Their has not been a single country that I could honestly say engaged in meaningful austerity including Germany. And while laying off government workers means less consumption from their end they also mean less taxation on the other end. If the government workers can't buy as much they can simply seek customers from the excess capital that is no longer being wasted on government expenditure and is in their own pocket. And while some jobs may disappear other jobs will be created, governments have at times let recessions run their course and the economy recovered in due course. The problem is that so many jobs should not exist be them government jobs or the jobs of people working at propped up companies that when the government can no longer stop them failing it will take the economy years to recover. Europe is going to go through a long run of stasis unless Germany gets their head out of their collective kiester and lets QE and stimulus happen. More inflation is not going to do anything other than discourage saving which is a big part of the problem in the first place. When people consume beyond what they produce it will always catch up with them. China will be unwilling to sustain American consumption forever. |
austerity is wrong if you have to cut more thanjust the fat. germany hasnt cut any government worker, they hired MORE because they were needed to make the systemn run better. lower taxation on the other hand doesnt work realy well, the people who would consume more dont pay taxes and the one that get a lot of money back doesnt consumer more even if they would pay 0% taxes.
if you want to cut taxes, cut consume taxes, not income taxes.
and QE isnt working because the banking system is broken and needs replacement. greece needs community banks, cooperative or city owned, both works well. a real stimulus would work, but they had to break a iron law and let the ecb finance the stimulus. bestway would be green energie, that helps generating profits IN the state and not in the middle east or russia.
the thousand of small green energie producers in germany generate a lot of taxes on a local level, where the people get the most out of every € the community produces( and they dont try to evade taxes so hard because it would be way to much work for the little taxes they could evade)
