Europe’s problem is Austerity?

[Kimura]

Yep, its massive taxes, massive spending, massive govt intervention, centrally planned stimulus, and civil servant employment that will turn those economies around......

If the genocidal austerity forced on the Greeks is some magic bullet, why has the Greek economy continued to contract quarter after quarter for the last 5 years?

It is forced by them. They spent too much and there was a fear they could not pay their debts so Greece had to increase rates and that in turn increased their spending and caused even higher deficits causing even higher interest rates to the point of collapse. The rest of Europe is trying to prevent that from happening to save their own economies because Greece could cause a panic on bonds and then boom bubble bursts. This is not over trust me.

No. The bailout package they received came with strings attached. They had to institute severe, bone crushing austerity. Again, the more they cut, the further they go into a spiraling depression. Why should the average Greek suffer to bailout bond holders from France and Germany?

 

[Koios]

And by the way, wages in Germany are higher than in Spain, which obviously has lower median income than Germany or ...

Belgium, Denmark, Sweden, Netherlands/Hague, Ireland, UK, Switzerland, Norway ...

It is not about absolute numbers. Spain had lower productivity, which is fine as long as you wage is also lower. But since Spain joined the euro, this is what happened:

Spanish workers are now paid more than they worth (not their fault, it was the result of ECB policy). And, absent inflation in Germany, the only way for Spain to lower its labor cost is by reducing their salaries, which, in turn, can only be achieved by years of high unemployment.

I'm not sure what Krugman is basing that on. Median income IS lower in Spain, and wages there are not too high, as far as I tell. The standard of living simply is not at Germany's level, for the typical Spaniard.

 

[Luddly Neddite]

urope’s problem is Austerity?

Yes.

 

[ilia25]

No point in screwing that up with conventional or any other wisdom, it seems...

Says who?

Stick to that conventional wisdom if you like But if you ever decide that there is more to say about the world than a bunch of truisms, here is a good place to start:
Economics and Politics by Paul Krugman - The Conscience of a Liberal - NYTimes.com

 

[ilia25]

I'm not sure what Krugman is basing that on. Median income IS lower in Spain, and wages there are not too high, as far as I tell. The standard of living simply is not at Germany's level, for the typical Spaniard.

The chart shows how fast the salaries were growing from where they were back in 2000. They were lower in Spain than in Germany in 2000, then the gap shrinked a lot. So Spaniards are making much more money than before (albeit still less than Germans), but their productivity hasn't increased all that much -- which means they are much less competitive now than in 2000.

 

[Koios]

No point in screwing that up with conventional or any other wisdom, it seems...

Says who?

Stick to that conventional wisdom if you like But if you ever decide that there is more to say about the world than a bunch of truisms, here is a good place to start:
Economics and Politics by Paul Krugman - The Conscience of a Liberal - NYTimes.com

I was joking about banks not being wise lending to Greece as if it was Germany and France.

 

[Koios]

I'm not sure what Krugman is basing that on. Median income IS lower in Spain, and wages there are not too high, as far as I tell. The standard of living simply is not at Germany's level, for the typical Spaniard.

The chart shows how fast the salaries were growing from where they were back in 2000. They were lower in Spain than in Germany in 2000, then the gap shrinked a lot. So Spaniards are making much more money (albeit still lees than Germans), by their productivity hasn't increased all that much -- which means they are much less competitive now than in 2000.

It has to be relative to productivity, a grossly misunderstood measure, It's not how industrious we are at work, cranking out more widgets per hour than our foreign counterparts, it's labor's share in the economic output of the country. We rank really high in productivity, meaning our workers are paid less compared to the economic output of what we do ... in case you're wondering why wealth is polarizing so severly in the US.

And it follows that the stuff Spain is producing is not nearly as valuable as the stuff Germany produces. So German workers can have higher productivity, so called, and still be better paid for the same work hours.

Some countries, especially Nordic Model countries have higher productivity than us, I believe. I haven't checked in a while. But that works if and only if, the producers are highly taxed and benefits accrue to workers via government funded things, such as free healthcare, college up to PhD, transit, electric and other subsidies. So even with lower pay relative to output, the Nordic countries have a really high standard of living for their middle class.

 

[ilia25]

I'm not sure what Krugman is basing that on. Median income IS lower in Spain, and wages there are not too high, as far as I tell. The standard of living simply is not at Germany's level, for the typical Spaniard.

The chart shows how fast the salaries were growing from where they were back in 2000. They were lower in Spain than in Germany in 2000, then the gap shrinked a lot. So Spaniards are making much more money (albeit still lees than Germans), by their productivity hasn't increased all that much -- which means they are much less competitive now than in 2000.

It has to be relative to productivity

No-no, productivity is defined as how many units a worker produces in an hour. The labor cost is how much the worker was paid for producing a single unit.

The chart shows that the cost of producing a single unit was growing in Spain much faster than in Germany. In other words, production is Spain was becoming less and less competitive.

 

[Koios]

The chart shows how fast the salaries were growing from where they were back in 2000. They were lower in Spain than in Germany in 2000, then the gap shrinked a lot. So Spaniards are making much more money (albeit still lees than Germans), by their productivity hasn't increased all that much -- which means they are much less competitive now than in 2000.

It has to be relative to productivity

No-no, productivity is defined as how many units a worker produces in an hour. The labor cost is how much the worker was paid for producing a single unit.

The chart shows that the cost of producing a single unit was growing in Spain much faster than in Germany. In other words, production is Spain was becoming less and less competitive.

You're either joking or grossly misinformed.

 

[ilia25]

It has to be relative to productivity

No-no, productivity is defined as how many units a worker produces in an hour. The labor cost is how much the worker was paid for producing a single unit.

The chart shows that the cost of producing a single unit was growing in Spain much faster than in Germany. In other words, production is Spain was becoming less and less competitive.

You're either joking or grossly misinformed.

Can't you google?

Labor productivity measures the amount of goods and services produced by one hour of labor

Unit labor cost is the calculation of the cost of an item produced

 

[Bleipriester]

The prolem is that the same guys who ran europe into trouble are now the "reasonable" politicians, who enforce the austerity measures on the poeple.
Europe has a political problem.
Example: Spain:
Spain has only 106 citizens per politician (Germany: 554) and their average wage is 100.000 €. Saving option: 36 billion € annual. A trade union says, tax fraud costs the spanish state at least 90 billion € annual.
This must be seen with the fact that 27 % of the Spanish population vegetate below the Spanish poverty line of 7800 € annual and that another quarter threats to fall below that line.
The current european misery is just a redistribution of wealth to the rich, the banks and their puppets, the politicians.

 

[Koios]

No-no, productivity is defined as how many units a worker produces in an hour. The labor cost is how much the worker was paid for producing a single unit.

The chart shows that the cost of producing a single unit was growing in Spain much faster than in Germany. In other words, production is Spain was becoming less and less competitive.

You're either joking or grossly misinformed.

Can't you google?

Labor productivity measures the amount of goods and services produced by one hour of labor

Unit labor cost is the calculation of the cost of an item produced

You're confusing corporate accounting models and "productivity" as measured when comparing countries.

Using that model when comparing even disparate workers, would make a strawberry picker about 100,000% as productive as a worker who helps make Boeing aircraft.

Check Google again, for comparative national worker productivity.

 

[ilia25]

You're either joking or grossly misinformed.

Can't you google?

Labor productivity measures the amount of goods and services produced by one hour of labor

Unit labor cost is the calculation of the cost of an item produced

You're confusing corporate accounting models and "productivity" as measured when comparing countries.

They are not different.

Using that model when comparing even disparate workers, would make a strawberry picker about 100,000% as productive as a worker who helps make Boeing aircraft.

A "unit" of output is something worth, say 10 dollars. Not 10 strawberries. Not 10 planes.

 

[Koios]

Can't you google?

Labor productivity measures the amount of goods and services produced by one hour of labor

Unit labor cost is the calculation of the cost of an item produced

You're confusing corporate accounting models and "productivity" as measured when comparing countries.

They are not different.

Using that model when comparing even disparate workers, would make a strawberry picker about 100,000% as productive as a worker who helps make Boeing aircraft.

A "unit" of output is something worth, say 10 dollars. Not 10 strawberries. Not 10 planes.

They are. What's a unit of anything service related? Say it's a busy hour and the cashier handles $1000 instead of $300. More productive cashier than the one who was at the other counter and serving bubble gum buying kids? Yes; if and only if, the GDP, relative to that labor cost, is higher.

Perhaps we're saying the same thing, just differently. What workers are paid, relative to GDP = productivity, when comparing countries. Fact. Which I need not google, hopefully, given my age and experience.

 

[Wiseacre]

Why there would be such fears about the US, if investors are confident that a much smaller Japan will have no troubles servicing their 13 trillion debt?


I wouldn't assume Japan will have no troubles, I think they've been very fortunate thus far even though they had that terrible tsunami and nuclear incident. Doesn't necessarily mean they'll be able to continue growing their debt and servicing it.


There could be a point when the debt is too high -- but the US is far, very far from that point.


Could be, but my question is how long are you willing to forego the tough decisions that will be necessary when we get to that point? And are you willing to pass that timebomb off to our kids and grandkids? Tome, that is simply unconscionable, but that is exactly what we're doing.


The only way the rates can go up is when they are drived up by the recovered economy -- which will fix the fiscal problems as well.

Half right IMHO. If and when our economy finally does recover, there's a lot of money that will begin to pour in and that means inflation. Investors that used to buy US securities for less than a 2% return will no longer be willing to do so, and you're right, rates will go up dramatically. But by then the genie will be out of the bottle, and the $300 billion or so a year we spend now will grow to over a trillion dollars just on servicing the debt.

And how much money the government will be receiving in tax revenues by the time it would have to pay 1 trillion on servicing its debt?

Nowhere near enough. You don't really think revenue will keep up the debt interest, do you?

 

[ilia25]

You're confusing corporate accounting models and "productivity" as measured when comparing countries.

They are not different.

Using that model when comparing even disparate workers, would make a strawberry picker about 100,000% as productive as a worker who helps make Boeing aircraft.

A "unit" of output is something worth, say 10 dollars. Not 10 strawberries. Not 10 planes.

They are. What's a unit of anything service related? Say it's a busy hour and the cashier handles $1000 instead of $300. More productive cashier than the one who was at the other counter and serving bubble gum buying kids? Yes;

No -- that is not true. Not unless the first cashier did something that made its customers spending more than they would otherwise.

And may be you should google a bit. It was fun talking to you when I had to explain the difference between the convectional wisdom in how the world really works. And I think I gave you plenty to think about.

But arguing about commonly accepted definitions is not fun at all, so I better stop here

 

[francoHFW]

OP? Yup. But none of this would have happened with Bush/Pub corruption and cronyism Great World Depression. People in EU are getting tired of Germany forcing austerity on them while making tons of money selling stuff to them, helped by financial mechanisms I don't remember...lol

Japan's debt is over twice as big as anyone else's and they have no problem borrowing...

 

[ilia25]

Half right IMHO. If and when our economy finally does recover, there's a lot of money that will begin to pour in and that means inflation. Investors that used to buy US securities for less than a 2% return will no longer be willing to do so, and you're right, rates will go up dramatically. But by then the genie will be out of the bottle, and the $300 billion or so a year we spend now will grow to over a trillion dollars just on servicing the debt.

And how much money the government will be receiving in tax revenues by the time it would have to pay 1 trillion on servicing its debt?

Nowhere near enough. You don't really think revenue will keep up the debt interest, do you?

Yes, I do! The US government accumulated a lot of debt in recent years, but it also rolled over more debt at low rates. it will take many more years for that to unwind. In the meantime, the revenues will return to the pre-crisis trend, which means the will be at least 2-3 times higher than the current 2.5 trillions. Compared to that additional 0.7 trillion in service payments won't look all that scary.

 

[Wiseacre]

And how much money the government will be receiving in tax revenues by the time it would have to pay 1 trillion on servicing its debt?

Nowhere near enough. You don't really think revenue will keep up the debt interest, do you?

Yes, I do! The US government accumulated a lot of debt in recent years, but it also rolled over more debt at low rates. it will take many more years for that to unwind. In the meantime, the revenues will return to the pre-crisis trend, which means the will be at least 2-3 times higher than the current 2.5 trillions. Compared to that additional 0.7 trillion in service payments won't look all that scary.

It's mostly short term debt, won't take that long before it has to be rolled over. I don't think economic growth are going to return to the pre-crisis trend any time soon either, there are quite a few people who think that 2-3% economic growth is going to be the new norm, especially if we raise taxes as much as Obama wants to.

I suspect your estimates of revenue growth are somewhat overly optimistic. If you believe revenue is going to be 2-3 times greater than it is now, then you must also believe GDP is going to be 2-3 times greater than it is now too. So you think our 16 trillion GDP is going to double or triple any time soon? At 3% a year, how long does it take to double? Somewhere in the neighborhood of 24 years I think. I'm thinking our annual interest payments are going to hit a trillion dollars in 10 or 12 years, thanks to an increasing total debt and a rise in interest rates. IOW, the amount of money we're going to spend servicing out debt is really going to crowd out a lot of other things.

Oh, and BTW spending for everything else is going to outstrip revenue too.

 

[ilia25]

Nowhere near enough. You don't really think revenue will keep up the debt interest, do you?

Yes, I do! The US government accumulated a lot of debt in recent years, but it also rolled over more debt at low rates. it will take many more years for that to unwind. In the meantime, the revenues will return to the pre-crisis trend, which means the will be at least 2-3 times higher than the current 2.5 trillions. Compared to that additional 0.7 trillion in service payments won't look all that scary.

It's mostly short term debt, won't take that long before it has to be rolled over.

That is not what I heard. You have a link to prove it?

I don't think economic growth are going to return to the pre-crisis trend any time soon either

It is not about growth. It is about returning to the normal unemployment level. Or, to put it differently, it is about returning to the potential output.

Currently the economy is still in depression -- the output is below potential. That depresses the government revenues. If there was no crisis in 2008 and the economy remained at potential output, the revenues would be 1 trillion higher than they are now (by staying on pre-crisis trend).

But the depression will not last forever. And yes, that means we will experience a period of faster growth when the economy will be closing the output gap.

I suspect your estimates of revenue growth are somewhat overly optimistic. If you believe revenue is going to be 2-3 times greater than it is now, then you must also believe GDP is going to be 2-3 times greater than it is now too.

No, the government revenues drop disproportionally when GDP drops. After 2008 GDP tracked 10% below pre-crisis trend, but the government revenues were 30% below the trend.

So GDP does not have to triple. May be double.

So you think our 16 trillion GDP is going to double or triple any time soon? At 3% a year, how long does it take to double?

We are talking nominal here. Real GDP grows @ 3%, but nominal GDP grows at 5-6%. And it will be growing faster when the economy starts to recover from depression, and until the recovery is over.

Somewhere in the neighborhood of 24 years I think. I'm thinking our annual interest payments are going to hit a trillion dollars in 10 or 12 years

The interest rates will remain low until the economy completely recovers from depression -- and it has to grow fast for a few (5-6?) years for that to happen. That means 6-7% NGDP growth rates (e.g. 4% GDP times 2.5% inflation).

Then it will take a few more years for the debt to to roll over at high rates, while NGDP continues to grow at 5-6%.

In this scenario NGDP will double in 12 years. The government revenues will be at least 5-6 trillions by then.

Oh, and BTW spending for everything else is going to outstrip revenue too.

Yes, but deficit to GDP ratio will shrink dramatically.