If these tax-less spend-less austerity morons were right about their ideology, you'd think it might have worked once in a while. But it never has, nor will it ever. Instead they've taken to punishing the nations that prove them wrong. Same thing is going on now in Australia.
They did it in Chile after the coup (1973) and it worked...so...well. Overnight, we went from masses of public servants endlessly on strike, 400% inflation, and halfway-to-Cuba socialism to tons of public servants getting fired (none of this furlough with back pay business) and the remainder shutting up and doing their work. There was a small downtick in the economy, shortly, not unlike the downtick in US after WWI that ushered in the roaring twenties. Naturally, the economy changed drastically because of the dictatorship and foreign loans make it slightly harder to analyze, and in 1982 the economy got hit badly for pegging the currency, which is a different story. But they cut spending, lowered taxes, and it worked fantastically.
Ultimately, if, as a country, you're thinking of going down the tax-less spend-more road, you have to amass enough power in the hands of the people that will carry it out (in this case a dictator) that the public sector can't go on an endless tirade of strikes and sabotage. If not, guess what'll happen? The essentials from among the things the government provides will be the first to go in an attempt to rile the public up. But how many cushy do-nothing bureaucrats will get fired? That's where government spending is, in its vast majority—in the salaries of government employees. If you want to tax less and spend more, keep in mind that you'll be going toe-to-toe with the people that run government (more-so than politicians) and that it's a serious political battle for the country to take on.
So in that sense you're right--expecting to politically shift over to tax-less spend-less policy may be fruitless and unrealistic, if only because the people one is trying to lay off will always sabotage the effort.
You need some serious balls to defend Pinochet and his criminal gang.
"Immediately after the coup the junta moved to crush their left-wing opposition. In addition to pursuing armed revolutionary groups it embarked on a campaign against opponents and perceived leftists in the country. As a result, according to the Rettig Commission, approximately 3,000 people are known to have been killed, 27,000[1] were incarcerated and in a great many cases tortured." [1]
Reading "The Shock doctrine" by Naomi Klein opened my eyes. She would disagree with you on the "halfway-to-Cuba socialism":
"As for the argument that Friedmanite policies are the reason Chileans live in "houses of brick" instead of "straw", it's clear that Stephens knows nothing of pre-coup Chile. The Chile of the 1960s had the best health and education systems on the continent, as well as a vibrant industrial sector and a rapidly expanding middle class." [2]
That's not at the center of the argument here, it being economic, but sure, let's discuss it. How many people has Cuba, which was the model for Chilean socialism, imprisoned, and killed? It's far higher. While still nowhere like Stalinism, which in fairness to Allende it looked unlikely to become, Cuban socialism is pretty grim.
I sometimes defend Pinochet, mostly economically. So do millions of other Chileans. I'd guess about half. Hell, I know people who had champagne ready for when the coup came about. Did people die? Yes. Lawfully? No. But Allende's government had already been declared illegal by the Chilean Supreme Court, and was rapidly turning into Cuban-style communism. Pinochet didn't make the stakes higher than they already were.
And economically, which was what we were talking about, again, it was a case of taxing less and spending less that worked very well.
To be fair, people defend Hitler on economic policy. Richard Koo (who got famous for his comparisons of the financial crisis to lessons from Japan) said something along the lines of Germany under Hitler unfortunately being the only European country with a successful economic policy at the time.
I'd have to dig a bit for the link to his speech though, it was a few years ago.
It was during the first three days they were held captive that Mr Schesch and his wife became aware of the lines of people being formed up and then led out of the stadium - almost certainly to concentration camps - or else inside, to face the firing squad.
Sorry if I hurt your feelings, but I seriously think black humor is a good tool to give perspective -- the left around where I grew up pushed tens of millions of dead under the carpet. (E.g. the stories from volunteers that left for Soviet in the 30s were oppressed until well after 1989.)
3000 dead is, sadly, a rounding error for the ideology that gets five percent of the vote in my home country.
Right now I'm in East Europe and shocked at the stories of how Soviet broke the back of any complaints -- just these are worse than Chile in most countries here... And mostly unknown.
It might be different where you live.
But I do agree with what you seem to imply -- one person is too many.
The post-coup economy in Chile was not so spectactular. Between 1972 and 1993, per capita GDP fell. GDP growth for the twenty years after the coup was lackluster compared to other South American countries.
You did mention the economy getting hit bad in 1982 (and 1983, and 1984), you didn't mention Chile was bailed out by an IMF loan of over $7 billion. As Chile's GDP in 1986 was $17 billion, this was a rather big bailout from Uncle Sam.
Speaking of Uncle Sam funding, you can read on the CIA's own web site a rather polished up version of its involvement in Chile at that time ( http://www.cia.gov/library/reports/general-reports-1/chile/i... ). While it mentions plenty of covert funding, what is not mentioned is how many of those strikes you speak of were bankrolled by the CIA, US AID, ITT affiliated organizations and so on. Many of the workers who were on strike were managers or professionals.
Then of course there's the question of whether a democratically elected government should be overthrown with the heavy financial and military help of a foreign power, leading to a new system where a happy day for a young woman imprisoned in secret detention centers was where she would just be raped, as opposed to a host of the bizarre things that happened at the secret detention centers that came out in Chile's 2004 government Valech commission report. That aside, the GDP growth was less than Chile's neighbors were doing at the time and was fairly small anyhow.
> The post-coup economy in Chile was not so spectactular.
Yes it was. Keep in mind, the price of copper favoured Chile during Allende and disfavoured Pinochet--and it was, as we say, "el sueldo (salary) de Chile." I don't see what's wrong with the loan--Chile paid it back in full--and really, you're cherry picking when it comes to dates after the coup.
At the center of the argument is the question: does spending less and taxing less work? Keep in mind, the tax regime, to this day, is almost identical to what it was in the eighties (very low), and now Chile is the only country in the region in the OECD.
You have a lot of excuses for why the post-coup economy had problems - the price of copper changed, currency was pegged to the dollar (and who decided that policy?)
Chile's GDP in 1969 was 7 billion. 1970 Allende becomes president it is 8 billion. 1971 its 9 billion. 1972 its 10 billion. 1973, the year of the coup its 11 billion. Then 1974: 16 billion, 1975: 15 billion, 1976: 7 billion, 1977: 9 billion. It was 3.5 billion less in 1976 then it has been in 1972 under Allende. So then it runs up and begins descending again. 1984 19.8 billion, 1985 19.2 billion, 1986 16.5 billion, 1987 17.7 billion.
Going from 11.5 billion in 1972 to 16.5 billion in 1986, 17.7 billion in 1987 is not all that impressive.
From 1994 to 2010, under left wing governments, Chile's GDP grew by $124 billion to $172 billion.
This notion that the coup transformed the Chilean economy for the better was at its height (in the U.S. as well) in 1982 - right before the crash, which needed a multi-billion dollar IMF loan/bailout. The story you're telling sounded better 31 years ago, before that big crash.
The tax regime barely changed in that time. Sales tax went from 18% to 19%...they added a 3% royalty on something metal-related...I think that was about it. That answers the "tax less" part of the question.
You are saying that the economic policy of twenty years of socialist government, under which the majority of the growth of the Chilean economy actually occurred, had more or less the same tax and spend policy as envisioned by Pinochet. Pull the other one, it has bells on.
I suspect austerity does work but has an inflection point. It can (theoretically) be used to cut outright government waste.
On a personal level, you might stop paying for your cable TV when money gets tight and have it make you better off. Not paying for your car and finding yourself unable to get to work would make you worse off despite the "savings".
The trouble with politics and austerity is they always seem to end up missing the car payments and keeping the cable on.
If Austerity cut waste, it would probably work. The problem is that in government waste usually stems from bureaucratic calcification and corruption. Calcified and corrupt bureaucracies are highly resistant to change and have the system "wired" to defeat it, so they don't generally get hit much. Austerity's cuts fall disproportionately upon social safety nets and productive activities, hence the result.
I've been of the impression for a while that government waste and corruption grows without bound until it destroys the host, resulting in a revolution or some other kind of "reboot," and then repeat. There appears to be no way of actually cutting it without setting fire to the entire thing. Few things in nature are as tenacious as a parasite.
> I suspect austerity does work but has an inflection point. It can (theoretically) be used to cut outright government waste.
So that makes intuitive sense, but a lot of things in economics (and everything else complex) make intuitive sense but turn out to be completely wrong. The problem is that while we both "suspect" that this is true or close to true, all that really means is that our gut says it must be and we're smart enough to know about a mechanism like inflection points that can be used to rationalize it.
Or, since we have an intuitive hunch and we know about things like inflection points, we might go and investigate more carefully doing our best to find out how it works in the wild. Until then, I'll admit, it is much fun to "Gladwell" it over drinks, no?
More fun? Definitely, especially with someone who just used the phrase "to Gladwell it", which I love and really hope I remember to start using regularly to describe this kind of thing.
State austerity during a market recession makes no sense because the state is one of the few participants who is still able to borrow at reasonable rates. The borrowing will still have to occur, because people need to eat, however it is paid back at Wonga rates of six squillion APR, rather than at the government bond level.
wasted spending is not a social problem in itself -- it just moves wealth around, but doesn't destroy wealth.
Wasted production -- on stuff no one wants (like wartime destruction), is a problem.
Opportunity cost is wasted production (paying people to lay bricks instead of building efficient brick-building machines, say), and that's the motivation for "free market instead of central planning", but that's what austerity means. Austerity means cutting government spending to raise the government's bottom line -- but the government's bottom line isn't like yours. If the country owes its own citizens money, it won't go bankrupt -- that's just taxation under a different name
The Laffer Curve suggests that there is a maximum level of taxation beyond which increases in the tax rate do not generate additional revenue. (Also sometimes called the "Sheriff of Nottingham paradox": raising taxes on people with nothing does not yield more money)
I was suggesting that there are certain government programs that incur a cost to operate incur a greater cost to cease operating. They generate a net positive on the money spent. Cutting them for "austerity" is foolish.
One must remember that the Laffer curve is a theoretical discussion that can help to explain economic phenomenons. It's not a law of nature.
Laffer curve may point us towards the general direction, but real world observation have showed that there is no simple, smooth curve that predicts tax income versus tax rate - human behaviour is far to much stochastic for that.
This reply should be downvoted into gray. It includes a direct insult, and strong claims with no proof behind them. There is no logic in this post, only pure bitter emotion.
I believe in the principles involved in austerity, but would argue that those using that word in government are "doing it wrong".
- Do you believe the government is inefficient with its money? ( public school system)
- Do you believe that the government has its hands in too many pies and should be doing less? (NSA)
- Do you approve of the cost of the ACA website? What about the value we're getting for our money?
- How about Mr Presidents Million dollar golf trips while he shuts down the White House?
- How much good could be done with the $420 billion in interest payment we paid last year alone on our debt [1]?
There are many reasons to try to be more efficient/austere with our money. I personally strive to be debt free and self sufficient, and I would like my country to be the same. I don't think the power our foreign lenders have over us is a good thing.
I gave you an upvote even though you're factually wrong/misguided, because you don't deserve to be in the gray.
> I personally strive to be debt free and self sufficient, and I would like my country to be the same.
First of all, you are conflating country and government. Most of a government's debt is typically held by the country's citizen, so government debt is in fact private wealth.
Second, think about why you strive to be debt free and self sufficient, and then think about whether the same logic applies to a government that issues its own currency and is indebted only in that currency. A government that is monetarily sovereign is subject to different rules than private households and must therefore follow different strategies.
If you transfer the guidelines you have developed for your own personal dealings directly onto the government, you're making a mistake. It may feel good and morally right, but it's still wrong from a logical and rational perspective.
Austerity is the pinnacle of FYGM (fuck you, got mine) politics. It is almost always lobbied for and driven by the financial elite, and their reasoning behind it is that if government spends less, it needs less taxes, which means rich people get to keep more of their wealth to themselves. Those poor people over there though? Fuck 'em. If they worked hard like us they would be rich, too!
Of course, this wouldn't be politically correct to say outright. So instead, they disguise it under things like "fiscal responsibility." But underneath the rhetoric you can almost taste the hatred and contempt they feel towards poor people.
You're attempting to transfer your intuitive, everyday understanding of the situation of an individual household to the situation of an entire country or its government.
In doing so, you are making a mistake, especially when you apply it to the US.
Think about it: Why is spending more than you earn bad for a household? Because according to the rules of society you will eventually not be able to spend anymore.
The rules of society are different for the US government, and therefore your conclusion about spending vs. earning does not apply.
Australia is a good example of the fruits of fiscal discipline. The Howard government paid off our long term debt entirely, allowing the Rudd and Gillard governments enormous scope for borrowing. We'd be borrowing at a much higher interest rate otherwise.
Of course, as in many cases, there are confounding factors. Australia's is being a major supplier of iron ore and coal.
