Tuesday, November 15, 2011

The PIIGS: Austerity Upon Further Review.

One argument you hear from talking heads is that economic growth in Italy and Greece (the PIIGS in general) will be very low in coming years, even negative, due to "austerity". Austerity is used in terms of reduced government spending. That reduced government spending will reduce growth.

In regards to the above argument an item worth considering is how did one arrive at Z amount of public sector spending/promises/workers/tax rates? Stated alternatively, the constant rise in tax-types and tax rates coupled with rising debt lead to level Z.

We now know, for certain, that the PIGGS, in the main, engaged in rising tax-types and rising tax rates coupled with ever growing debt leading to the ever increasing role of politico promises through the mechanism of government. The phenomena then became a disincentive nightmare on one hand and politico promised pipe dreams on the other hand. Its exactly what F.A. Hayek explained as late stage socialism implosion.

Hence Z is/was a false number. Z-1 is the true number. Therefore, reducing to Z-1 is not “austerity” its merely returning from a false/bubble number. Any reduction in growth associated with the movement from Z to Z-1 is not a reduction in true growth.

Matter-of-fact, "austerity" is the incorrect term. Austerity would mean doing without. How can you "do without" something you could not afford in the first place? Hence the talking head argument is: living within one's means equates to low or no growth.

No comments:

Post a Comment