With austerity proving "uniquely destructive" to the eurozone, Berkeley's Christina Romer says...


With austerity proving "uniquely destructive" to the eurozone, Berkeley's Christina Romer says "measures should be backloaded." I.e., they should be passed now but phased in gradually as economies recover. History shows that it works: e.g., the U.S.'s 1983 Social Security reform, and Sweden's plan to cut its deficit by 8% of GDP in 1995.

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Comments (29)
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    The backloading idea makes a lot of sense.

     

    What has been happening in this country is that decisions are postponed, until after the next election, with the tacit hope on all sides that they will obtain a majority in the meantime and will then be able to impose their preferred ideological solutions without compromise or input from the other side of the table.
    29 Apr 2012, 06:30 AM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
     
    TA,
    Backloading might make sense in theory, but in actual practice it rarely if ever works.

     

    - Do you think the "backloaded" reversal of Bush tax cuts will actually be allowed to stand in Jan/13?. Almost certainly not.
    - Do you think the "backloaded" mandatory across the board federal spending cuts will actually be allowed to stand in Jan/13? Almost certainly not.

     

    Therein lies the problem with backloading of changes. They just rarely if ever actually happen.

     

    The only real response of gutless politicians and spineless central banks is to inflate, inflate, inflate, and print, print, and print, and devalue, devalue, and devalue. After all, inflation is just a stealth tax on the majority of a country's citizens, which the wealthiest and most connected (including businesses) can mitigate much more easily than can the masses.

     

    Thus the real question that should be being asked is why are politicians and central bankers NOT being held accountable for stealth taxes, aka inflation. And the answer is that they are too dishonest and deceptive to openly and honestly either raise taxes or cut spending. Such is why they "default" to unworkable fantasy such as "backloading" and then proceed with their real agenda of stealth taxes via inflation.
    29 Apr 2012, 03:08 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    untrusting,

     

    The purported reversal of the Bush tax cuts, and the mandatory spending cuts, were both political ploys. The agreement was, and is, let's see who wins the election, with the tacit hope on both sides that they would be able to secure control of House, Senate and Oval Office, and from there, impose solutions that matched the ideology of those whom they serve.

     

    There never was any intention of compromising or agreeing to anything. It was just a ploy, to try to defer the decision making until a time where the balance of power might be more advantageous.

     

    In 1983, there was an agreement that the problem had to be addressed: it was addressed, by the genuine assent of a substantial majority.

     

    The fiscal cliff is a political construct. It surely will be destabilizing. I believe in my heart that there are many who would welcome a crisis. In times of crisis, it is possible to seize the advantage and do things you would not otherwise be able to do.

     

    So we have the extremists, sitting there patiently waiting their chance to provoke a crisis, and then impose their ideological solutions.

     

    It could get very ugly, and it could go either way.
    29 Apr 2012, 03:50 PM Reply Like
  • NIRP
    , contributor
    Comments (419) | Send Message
     
    You are correct about the crisis part and it will get very ugly and it will go the way of the money/banks......eventual one world govt. and one world bank. Another 50 years or so in the making. Crisis like 911/home security and 2009/ health care. I'm sure other examples can be sited. It will be at the right time.
    29 Apr 2012, 05:19 PM Reply Like
  • Bret Jensen
    , contributor
    Comments (14000) | Send Message
     
    Isn't this the same person who helped designed the $800B porkulus package that was supposed to keep our unemployment rate under 8%? I find it incredulous that the NYTimes is leading a chorus saying European austerity has gone too far. Let's see.....Greece still pays disability payments to pedophiles and kleptomaniacs....Italy still has towns with 900 people, one traffic light and 8 traffic cops....Hairdressers are still retiring at 53 with full pensions (one of over 200 job classifications that are judge hazardous in Greece)...Labor reform still hasn't happened...I think we have a way to go before we can say we can't find any more government fat to cut.
    29 Apr 2012, 07:26 AM Reply Like
  • Michael Clark
    , contributor
    Comments (11578) | Send Message
     
    Keep cutting government spending. And raise taxes on the rich.

     

    No growth is possible now, not until government, corporations and consumers all get out of debt.
    29 Apr 2012, 07:31 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    Greece has a problem with its government: nobody puts in (by paying taxes) and everybody takes out (by abusing benefits or postitioning themselves at the trough in other ways). It's a wonder any of them can look each other in the eyes.

     

    Most countries have problems of this type, the severity varies quite a bit.

     

    It simply isn't possible to fix a system where the fundamental rule is, everybody is permitted and expected to game the system.

     

    In practice, sudden shocks to the system should be avoided, as the US discovered when Lehman was permitted to fail. The imposition of successive episodes of austerity is similar to bleeding the patient until he either recovers or dies.

     

    Pragmatically, it will be more effective to stabilize the patient and then deal with the underlying health problems. In Greece, the problem is, everybody plans on taking more out of the government than they put in.

     

    We have that same problem here in the US, not as severe, but growing.
    29 Apr 2012, 08:36 AM Reply Like
  • bdarken
    , contributor
    Comments (645) | Send Message
     
    You hear "chicken little" of "austerity" from the media.

     

    The fact is that in the USA, we want private growth AND government austerity. Not austerity alone.

     

    Every family in the USA has seen a 10-15% hit to wealth/quality of life---except for the government.

     

    Time for the government to reflect the reality of the people it represents----AND free up the American people to solve its problems.
    29 Apr 2012, 09:35 AM Reply Like
  • WMARKW
    , contributor
    Comments (10786) | Send Message
     
    Tom....sounds like our biggest problem (pretty much world-wide) is morality.
    29 Apr 2012, 09:35 AM Reply Like
  • bdarken
    , contributor
    Comments (645) | Send Message
     
    The rule of law dissolved gradually into the rule of cronyism...where
    the rich/smart/hip make the rules.
    29 Apr 2012, 09:49 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    Morality is a broad topic, the part at issue here is our conduct towards each other with respect to private and communal property rights.

     

    If we weren't capable of organizing ourselves into large groups, we would all be hunter/gatherers or subsistence farmers. Groups create excess returns, over what any of the individual participants could achieve on his own, so then the question is, how do we divvy up the excess?

     

    And of course we all feel as if some portion of what we jointly produce or control should be ours, as private property, beyond the reach of our fellows, either individually or collectively.

     

    In small groups, and close together, honesty can be enforced. Our virtuous Pilgrim forefathers, when reduced to communal subsistence farming, developed an edict: "If you don't work, you won't eat." It seems that some of them felt that they had achieved a level of dignity such that they shouldn't be getting their hands dirty, let alone sweating in the hot sun.

     

    In large groups, cloaked by anonymity, honesty is more difficult to enforce. The tacit rule is, everybody knows that everybody cheats, in their own way, and the end result is that the group goes through all its resources and there is nothing left.

     

    At that point, the winners will be those who were most successful in taking more of the fruits of the joint endeavor. They can reliably be expected to cry "private property," set themselves up behind gates (with security guards), and hire private police forces to protect their "rights."

     

    It would be far better if we agreed in advance how to divvy things up, and held everyone to their side of the deal. Of course everyone has an ideology that translates into maximizing his share of the pie. The point is, if we don't actually reach agreement, and enforce it, big trouble is brewing.
    29 Apr 2012, 10:13 AM Reply Like
  • Poor Texan
    , contributor
    Comments (3527) | Send Message
     
    You mean instead of the type of love that is concerned about others, we've gone to a "as long as I've got mine, let the devil take the hindmost" mentality?
    29 Apr 2012, 12:12 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    That would be it. Under that system, life is a Darwinian battle for survival, with the most successful Financial Fraudster as its highest and most worthy speciman.
    29 Apr 2012, 12:39 PM Reply Like
  • WMARKW
    , contributor
    Comments (10786) | Send Message
     
    Well said Tom.
    29 Apr 2012, 01:07 PM Reply Like
  • Tack
    , contributor
    Comments (16261) | Send Message
     
    MC:

     

    "Raising taxes on the rich" is the class warfare mantra of the left, promoted precisely to further fund, not cut, Government largesse to the ever-growing unproductive, non-tax-paying segment of the population, which nonetheless has critical voting power to promote ever more of the same policy.

     

    We're approaching a critical juncture in this charade, as the nonvoting segment is about to cross over to what could promise to be a perpetual majority, at which time Tytler's and De Tocqueville's warnings about the public bankrupting its own treasury with handouts will become a reality.

     

    We're going to get a fascinating test case to watch in the immediately upcoming elections. California has several referendum initiatives on the ballot to raise income and sales taxes and to eviscerate the real-estate-tax protections of Proposition 13. Apparently, Jerry Brown feels so emboldened that the leftist majority is now overwhelming that he's been actively promoting the ballot-initiative route, which was heretofore the bastion of those that wished to contain runaway government, not promote it.

     

    If the voters are successful in California on these measures, look for similar campaigns in all the other similarly left-wing states. Oh, and also, look for a major amplitude increase on the flight of capital and jobs out of California.
    29 Apr 2012, 02:24 PM Reply Like
  • Michael Clark
    , contributor
    Comments (11578) | Send Message
     
    The choice is not between 'Growth' and 'Austerity'. No one in his right mind said "Austerity" was a quick fix to decades of undisciplined spending. The choice is between 'Prolonged Insolvency' and 'Eventual Solvency'.

     

    We like quick fixes. Austerity is not a quick fix. In fact there are no quick fixes. Anyone who tells you that borrowing more money when you are already overloaded with debt will lead to 'growth' is misleading you intentionally or is an idiot.

     

    Austerity will take at least a decade to destroy all the bad debts that we've taken on. Banks will vanish. Companies will vanish. People will vanish. It is Autumn, turning to Winter. No Growth is possible during the Winter. Cut government spending and raise taxes on the wealthy and use all the revenues to attack debt. That is the only sane plan, given where we are in the business cycle.
    The business growth season peaked in 2001, and then declined.

     

    The contraction will peak (think of growth as a mountain, and think of contraction as in inverse mountain, a reflection of the original mountain in the water) in 2019. This is when the reversal begins, IF we destroy the debt we accumulated so rashly at the end of the last expansion (especially 2001-2010).
    29 Apr 2012, 07:28 AM Reply Like
  • jhenn19630
    , contributor
    Comments (40) | Send Message
     
    The problem with backloading a debt deal is that it is always a lie. We have concrete examples of this lie in the elder Bush tax hike / deficit reduction and the many attempts at immigration reform. Remember, we will do an amnesty and then seal the borders. Doesn't happen. For those tax hikers who want a "deal", you must understand the reluctance on our part to deal when we know that the tax hikes will come immediately (think Obamacare) and the spending cuts will never, never, never come. This time we need borders sealed tight and then a "dream act" and we want spending cuts in place and functioning and then tax hikes. But we will take real tax reform anyday you are ready.
    29 Apr 2012, 07:50 AM Reply Like
  • Paul Price
    , contributor
    Comments (1508) | Send Message
     
    Substitute the words "living within your means" for 'austerity'.

     

    Consistently spending more than your income is a path to certain disaster.
    29 Apr 2012, 08:01 AM Reply Like
  • bdarken
    , contributor
    Comments (645) | Send Message
     
    Yep. It's living that's not "sustainable."
    29 Apr 2012, 09:36 AM Reply Like
  • schatzl
    , contributor
    Comments (391) | Send Message
     
    Too funny,

     

    a US policy advisor to Obama telling Europe it doesn't get it. Now we all know Europe doesn't get it, but does the US get it? So how is that massive deficit spending programme going over there in the States? Any luck yet? Any thoughts on the fiscal cliff approaching fast and growing deeper?
    29 Apr 2012, 08:31 AM Reply Like
  • Lakeaffect
    , contributor
    Comments (1449) | Send Message
     
    Romer's smoking her socks. The 1983 SocSec changes went into place all at once. Increased retirement age for those born after a certain year, benefits indexed to CPI instead of biannual vote buying spree by Congress, higher "contribution" rates for both employer and employee. All this was put into effect at the beginning.

     

    And interestingly, when this was done, the pronouncement was made that Social Security was "fixed" for the next 30 years, ie until 2013. Then we all fell asleep.
    29 Apr 2012, 08:59 AM Reply Like
  • davidbdc
    , contributor
    Comments (3194) | Send Message
     
    And I believe that the annual cost of living increase was frozen for everyone for 6 months.

     

    She is not genuine and a good example of what is wrong with those "serving" in our government today. Its done to boost the earning power for those in government. A perfect example is the guy who was Obama's economic advisor for about 10 months..... resigning to race back to his tenured job...... I'm sure his speaking fees have tripled.

     

    Austerity hasn't been implemented in Mainland Europe and it certainly hasn't been implemented here in the USA. It would include 15-20% reductions in pay for all bureaucrats. It would incude reforming Social Security and raising the retirement age to better reflect current life expectancy. It would include going through the disability rolls and kicking about half the people off. It would include eliminating entire government agencies and reducing the federal workforce by 25%. It would include closing military bases around the world and returning our military to one that is designed to protect the USA instead of protecting the world.

     

    When those things are done the primary result would be a return of freedom to the American people..... upon which everything else is built!
    29 Apr 2012, 10:14 AM Reply Like
  • Playdeep
    , contributor
    Comments (58) | Send Message
     
    The problem is that the cuts will never come and she knows it. You have to have the political will to make cuts and the only time you have that is during a period financial distress. Under her plan taxes will increase, their will be no cuts, and we will be worse off. Her idea is like the pea and the shell game, distract, push the cuts down the road and they will forget.
    29 Apr 2012, 09:43 AM Reply Like
  • Angel Martin
    , contributor
    Comments (1370) | Send Message
     
    Playdeep, that's right.

     

    The political system of europe as a whole no longer has credibility with the markets to promise "cuts in the future"

     

    they have too many recent failures, and core countries like France are ready to walk away from the fiscal stability pact (after, what, 4 months?)

     

    More generally, the austerity vs keynesianism debate is only relevant to the US. Europe is now beyond that.

     

    Europe's twin issues are that 1) the PIIGS had an increase in unit labour costs over germany of 20-30%, and 2) the PIIGS need nominal GDP growth to pay their sovereign debt.

     

    In order to become competitive the PIIGS need to reverse their cost increases, which basically means a 30% nominal wage reduction (which is a Depression scale drop in wages).

     

    But, debt sustainability requires nominal gdp growing faster than average interest rates. Europe is screwed. There is no way to square that circle.

     

    If the PIIGS get out of the euro they can devalue and solve their competitiveness problem. But that just makes their debt problem even larger (depending on what law their bonds are under)
    29 Apr 2012, 01:50 PM Reply Like
  • Paul Price
    , contributor
    Comments (1508) | Send Message
     
    The only way out is for them to exit the Euro, default on debt to anyone but their own citizens and start fresh.

     

    It's called bankruptcy and it's the only decent alternative.
    29 Apr 2012, 03:05 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (6205) | Send Message
     
    Money is promises, that the government will maintain conditions such that the medium of exchange it issues will command roughly the same amount of goods and services over time.

     

    Debt is promises, to pay money, which is promises.

     

    Social benefits are promises, to pay money, which is promises..

     

    Guess what, there were a lot of promises made that aren't going to be kept. The argument is over which ones.
    29 Apr 2012, 03:07 PM Reply Like
  • WMARKW
    , contributor
    Comments (10786) | Send Message
     
    The Central Banksters are the Purveyors of Debt. From their perspective it matters now whether people our countries or printing presses pay off the debt. In many cases it matters not whether the debt gets paid off. The most important thing for the Central Banksters is to have access (directly or indirectly) to the printing press and to be closely associated with the "government" so as to ensure having earliest access to the latest press output.
    29 Apr 2012, 09:44 AM Reply Like
  • Apacheleadership
    , contributor
    Comments (56) | Send Message
     
    Romer has been completely discredited. Even if one day in the future she actually had a good idea, no one would listen. She wasted her big opportunity. Another ivory tower Econ PHD idiot. She should live and work in the real world to find truth. Her ilk will tinker until it all collapses, then blame the blameless. Losers never take responsibility for their actions. Case in point: Jon Corzine.
    29 Apr 2012, 11:27 AM Reply Like
  • deercreekvols
    , contributor
    Comments (9484) | Send Message
     
    Where is Jon Corzine?

     

    1.2 billion reasons that he should be considered a criminal and not just a loser, in my opinion.
    29 Apr 2012, 07:25 PM Reply Like
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