EU Old World Economics are the wrong way.

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The difference between the Old World and New World remains on stark display this week. It might not be Morning in America, but the U.S. economy is waking up from the long national nightmare of a deep recession and expensive, traumatic bailouts. Outside of housing, the data flow is generally positive. The economy is now in the sixth quarter of growth -- not rapid enough to bring unemployment down rapidly enough -- but moving in the right direction. ... in Europe, the agony is being compounded by the persistence of an Old World idea. The tyranny afflicting Ireland today isn't political, it's intellectual. What we're witnessing in Europe, above all, is a failure of austerity as a means of combating deficits and bond market anxiety. From the outset, European countries, led by Germany, believed that problems in the government bond markets -- even those problems precipitated by problems in the banking sectors -- could be averted through aggressive fiscal contraction. Forget Keynes. Ignore the fact that growth is the only known miracle deficit cure. Slash spending and raise taxes, and bond markets will be less freaked out about the possibility of a government defaulting on its debt. Oh, and the banks in Germany and France that hold the debt of Greece, Spain and Ireland can avoid the pain of having to mark down the value of the bonds they hold. What could go wrong? Everything. When a country slashes spending and raises taxes at a time of already-weak growth, it tends to reduce domestic demand.

Could the Obama plan of "spend your way of the recession" actually be better than cutting down the deficit (however harshly)? I can see that with economic and job growth, more tax revenue will be used to pay down whatever deficits we may have -- eventually. I can also see how slashing jobs and raise taxes on an already weak economy will just make things even worse. But is there no middle ground?

So I wondering if our European brethen agree with this editorial or if this guy is full of hot air?

Discuss! [smile]

[frustrated rant]
"led by Germany" alone is a paradoxon, because nobody (not even the USA) have such a clueless leadership as we do.
If a bomb blew up in the Bundestag tomorrow, killing the whole lot of slackers, it would probably take two or three years before anyone noticed (and you would only know because taxes aren't going up for once).

Raising taxes and ancillary wage costs while lowering the social security is the only regular achievements of all governments during the past 20 years (no matter what colour they have on their flag). That, and raising remunerations for parliamentarians at the same pace every time.
Plus, making life for productive, working people as unattractive as possible, and ignoring all important social problems that come up, such as education, infrastructure in the east, healthcare, or foreigner integration.
Wait, I forgot to mention sticking their heads up to their shoulders into George Bush's rear after he went nuts on his total surveillance trip. That was probably their biggest achievement. Biometric passports, systematic communication surveillance, and cameras in every street, yay.
And, the latest "joke" they came up with, for those who can read it (in German): clicky.
That story is about a security professional working for some anti-malware company who had his apartment turned upside down and his computer seized. The verdict was that he had been "caught being infected" by some trojan (when he downloaded it willingly on a sandbox for analysis), which justified treating him as criminal, although he was provably innocent in every respect. The question how he could be "caught" in the first place is interesting, too. A more detailled version of the story can be found the guy's attorney's website.

Unluckily, there is a plan behind all this. We are slowly but steadily losing the war that Rudi Dutschke started in 1967. It took them 40 years, but his followers have succeeded in entirely subverting the system. Some people who openly advertised murder (or accepted death, if you want to call it that) of policemen in 1973 are minister today. Many other fellows of the same movement became judges, which is why our jurisdiction is equally perverted.
[/frustrated rant]

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Original post by Alpha_ProgDes EU Old World Economics are the wrong way. Quote: The difference between the Old World and New World remains on stark display this week. It might not be Morning in America, but the U.S. economy is waking up from the long national nightmare of a deep recession and expensive, traumatic bailouts. Outside of housing, the data flow is generally positive. The economy is now in the sixth quarter of growth -- not rapid enough to bring unemployment down rapidly enough -- but moving in the right direction. ... in Europe, the agony is being compounded by the persistence of an Old World idea. The tyranny afflicting Ireland today isn't political, it's intellectual. What we're witnessing in Europe, above all, is a failure of austerity as a means of combating deficits and bond market anxiety. From the outset, European countries, led by Germany, believed that problems in the government bond markets -- even those problems precipitated by problems in the banking sectors -- could be averted through aggressive fiscal contraction. Forget Keynes. Ignore the fact that growth is the only known miracle deficit cure. Slash spending and raise taxes, and bond markets will be less freaked out about the possibility of a government defaulting on its debt. Oh, and the banks in Germany and France that hold the debt of Greece, Spain and Ireland can avoid the pain of having to mark down the value of the bonds they hold. What could go wrong? Everything. When a country slashes spending and raises taxes at a time of already-weak growth, it tends to reduce domestic demand. Could the Obama plan of "spend your way of the recession" actually be better than cutting down the deficit (however harshly)? I can see that with economic and job growth, more tax revenue will be used to pay down whatever deficits we may have -- eventually. I can also see how slashing jobs and raise taxes on an already weak economy will just make things even worse. But is there no middle ground? So I wondering if our European brethen agree with this editorial or if this guy is full of hot air? Discuss! [smile]

I think he is missing the point, a nation can't spend money it doesn't have and borrowing money only works if the nation or people/organisations you borrow from can expect to get it back.

Its also really only four european countries that are in trouble (Greece,Ireland Spain and Portugal) and from the looks of things the rest of us will have to bail Ireland out atleast, But why should we give them money just so that they can keep having the lowest corporate tax in europe? (Their corporate tax at 12.5% is even significantly lower than the US 15-35% and it does cost other european nations quite a few jobs, if their tax is too low for their spending we shouldn't be expected to pay the difference)

Economist have been studying and arguing about economic policy for ages.. No one has it down yet because the game changes over time. Within a primitive society where communication travels slowly and technological disparity is high, then the ideas of Adam Smith dominate and the concept of trade, the invisible hand of the free markets and competitive advantage, and the monetary supply is floating and unregulated, etc.. and so called classical economic theory etc..

We now have societies where information travels at the speed of light and the technological disparity is small and the money supply is tightly regulated and monitored.. Money use to mean a exchangeable backed currency by the government redeemable as some precious metal, but the reality is there is only so much precious metal in the world to go around. If you printed only a 1:1 ratio of metal to currency, the limiting factor on economic growth, would be how fast you could mine the metal. Which makes no sense from an economic standpoint for a country..

Societies tried to fudge around that and print more money than they had precious metal but then you risk of defaulting on the exchange of metal to currency if enough people redeem their currency or risk of hyper inflation, where your currency is worth less because people "catch on" to your scheme and add in the exchange rates and other central banks, the problems compound. Within a simple society as described above you can get away with a gold backed currency scheme for awhile but as nations grow, much faster than their gold supplies and the speed of information increases such a system becomes untenable.. So nations eventually switched to a fiat money scheme.. but then that begs the question what does currency mean or represent now?

Before when a nation printed out an extra trillion "dollars" it meant it had to either find more gold to back it or decrease the exchange rate of "dollars" to gold. Obviously that left no room for fiscal policy controls on a national level, the choice of procuring million of tons of gold (which can't be paid for in "dollars", but some "other" good or currency?) or cause hyper inflation, which does the exact opposite of stimulating the economy..

We're entering another phase in human social economic evolution i think and simple ideas of 18th or 19th century economic policies don't apply anymore.. Societies have become much more interdependent and complex and people have access to much more information.. Money flows across countries much more fluidly and transactions are increasing exponentially.. We don't talk about a single countries economic policy anymore but entire regions (ie EU, America, Asian, etc..). Economic activity isn't driven by monetary policy anymore, I suspect. Its driven more by flow of information and the world "economic" organism to meet the needs of people. People create "need" and in turn create economic pressure which causes the wind of economic activity. Basic human needs are of course always present, food, shelter, etc.. but we've become so efficient at those things that we can devote 10% of our economic output to meet those needs..

90% of the world economic output is now to meet higher human needs of play, conflict/conquest, sex, enlightenment, travel, homeostasis, etc.. Almost all human economic activity can be tied back to those higher human needs, very different from primitive subsistence societies where 90% of their economic activity is used to meet the basic survival needs.

Modern societies there exist a feedback loop of social "mood" to the production/consumption of these higher needs, which make up the bulk of modern economic activity. A depressed society produces less valuable higher economic output (ie those of the higher needs bracket) and consumes less of them as well..This results in a deadly spiral of decay (both cultural and monetarily).

Nations will have to move away from simplistic monetary controls to regulate economic activity and more toward social engineering if it wishes to guide these forces, which are now the fundamental drivers of economic activity imo in a transitioning post-industrial society..

So it's not that printing out a trillion dollars made any difference, they could have printed out 10 trillion dollars, if the American people become despondent and despaired, it wouldn't have mattered.. But Americans have a strong cultural heritage of "bouncing back" and "over coming" adversity, these memes allowed people to weather the storm and maintain their "wealth", but at the cost of a high debt load. Eventually social mood will shift and economic activity rebounds and this will feedback upon itself leading to the next "boom" cycle.. Human economic activity has always been cyclic, interestingly enough the cycles can be measured by the average lifespan of humans beings of that age.. for our age its 68 year cycles..

Enjoy!

-ddn

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Original post by SimonForsman But why should we give them money just so that they can keep having the lowest corporate tax in europe?

Because we've done that for the last 30 years, they have a customary right.

Also, if our companies didn't save that money on corporate tax, they could not afford to outsource to Ireland, which is important to destroy jobs and keep the fear up. Outsourcing to India and Philippines works for some, but is not an option for other businesses, as this will cost customers.

On the other hand, outsourcing and destroying jobs is very important in high-wage countries. Eventually people are desperate and will work 20% more for 1/3 to 1/4 of their original salary. Then you can source-in again, and you have the same service locally as you had 10 years earlier --- just for less money.

This is not about taxes for the common man.

It's about US companies losing a very convenient tax haven.

IMHO, considering some very unusual wording (tyranny, Old/New World), I'd call this article a corporate shill spreading FUD.


On one side it may sound as if US should be happy if companies pull out implying those hundreds of billions in laundered tax money would now go to US government. But in reality, they would go to another tax haven somewhere else.

And that is a fairly big issue. EU is as close to US as it gets in ideology, politics and even geographic proximity. Ireland is really a sweet spot here. There is also that matter of cooperation at higher political levels.

There are alternatives, but they are definitely not in same political climates, definitely do not have same stability and are not of comparable sizes. While corporate lawyers will definitely solve any technical problems, it would be akin to moving your banking from Wall Street that that pwn shop next to McD in that shady and torn down part of town with lots of creepy looking guys hanging around. It may not matter, but it still hurts the image.

Also:

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The economy is now in the sixth quarter of growth -- not rapid enough to bring unemployment down rapidly enough -- but moving in the right direction.

To those that haven't understood what this recovery means:
Your CEO is getting second yacht, this one with gold-coated anchor, paid by huge bonus due to record profits.
You will spend unpaid overtime training your offshore replacement while your remaining two months of employment your salary remains flat.

As a European all I have to say is *shrug*

Honestly, I have no idea, and the arm chair econimists who seem to think they could do it all better amuse the hell out of me [grin]

About the only thing about all this which bothers me is that having bailed out the banks at the first sign of profit they seem to be throwing themselves bonuses once again instead of promptly paying back the people who bailed them out in the first place.

Heck, this whole thing has been good for me; I got made redundant from my old job and promptly got 8 interviews and a new job which is both better work and pays better.

So, I say again; *shrugs*

I dont like this 19th/20th century view where the "Old" world is considered to be Europe & the "New" world groups North America with Asia.

After the GFC I believe you could now say North America is the Old World - chasing/attempting to regain manufacturing jobs that are in my opinion not going to be back to peak levels. And I see the European Union, or more specifically the UK as taking asymetrical & intelligent measures to compete with & establish new economic ties in the real New World that is Asia.

I tend to believe that major economic powers are established through manufacturing might but (have to) transition to rely upon high level services to sustain growth. It seems that the UK especially(but EU as a whole) has & still is moving in that direction of a highly skilled population that can export services. But its just my opinion that this is the only proven way for major economies to continue to sustain growth (especially when other competing economies can out manufacture them).

And to me it seems that the US is trying to regain the old manufacturing jobs instead of transitioning(which is my opinion of how to keep a fully industrialised economy growing). Some will say that there are more highly skilled people in the US as a percentage of the population than in Europe but thats not true. Also European nations have alot of government emphasis(subsidies, programs) to support & encourage higher & tertiary education (which again is my opinion of what leads to a strong economy). It could be said that these programs are not economical(you dont get back more than you put in) but its hard to draw direct links between the money put into these programs & the tax you get back from Business & personal tax. Whereas the US doesn't have the emphasis on higher education from the government, thus no effective programs, & seems to not believe in higher education as a driver of economic growth or worse that the government is the only credible actor that can encourage & drive(through programs) people towards higher education (its too expensive). My overarching opinion is that as the new world rises, they offer quantity over quality - lots of engineers with just standard knowledge & experience - & that the EU understands this (they know they can not compete in numbers) so they focus on quality over quantity, a good psychiartrist is an exportable commodity & can compete with a new world equal. The same argument goes for manufacturing (German manufacturing focuses on quality & less on quantity OR PRICING!).

So if anything the editorial has it backwards in my opinion.

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Original post by Alpha_ProgDes Could the Obama plan of "spend your way of the recession" actually be better than cutting down the deficit (however harshly)? I can see that with economic and job growth, more tax revenue will be used to pay down whatever deficits we may have -- eventually. I can also see how slashing jobs and raise taxes on an already weak economy will just make things even worse. But is there no middle ground? .... Discuss! [smile]

The modern world and economy actually has a pyramidal structure(something like a food pyramid in animal's world).US are on the top-you know themself how much you are taking,how much producing and what is a difference.
"Wherever you go,whatever you do", just like in that song.It's a terminal point.
What about EU-it's an intermediate in this "global food chain",nothing more.Russia is somewhere on the bottom,something like a plankton.But it is a plankton always remains after the all world's disasters[smile]

So I wondering if our European brethen agree with this editorial or if this guy is full of hot air?


The latter. Whether europa as a whole is doing better or worse than the US is hard to say. Whats certain is that some parts of europe are doing far better, and some far worse.

It seems to me that the 'lulz everybody is a government employee with generous benefits and who cares about balancing the budget' european countries arnt doing too hot, while the austere countries such as germany are doing just fine.

The exception comes from countries which quickly grew into first-world nations in recent deccades, such as ireland and iceland, and their high resulting leverage. Economic downturns are no fun if you just did a lot of investing, but its only with hindsight that these were regrettable paths to take.