Wednesday, January 11

Amartya Sen: The economic consequences of austerity


Here is a good speech made by Amartya Sen, the Nobel Prize winner. And what do I know about austerity, eh? Or economics? Not much at all. I also take his point about how the Allies went too far in punishing the Germans after WW1. Carthingnian levels of punishment. When the Romans ripped out the entire country, after killing as many as they could, they sold the rest of the carthignans into slavery, destroyed pretty much every vestige of the civilisation was wiped out. Not content with that, they literally sowed the fields with salt. Its the last piece which I absolutely admire from one point, sowing the fields with salt means that it will be impossible to grow anything there. There are many other examples. Think about what the mongol hordes did in the various parts of the middle East, they knew that their nomadic and horse borne soldiers were too few to control the teeming millions so they simply cleared them out, literally depopulated the middle east like in Iran and Iraq, this put paid to the development of the Islamic state for centuries. 

You can ask if Versailles was indeed that bad, the desire for revenge is strong but there is a big difference, that was war. And in wars, the losers are dammned. At this moment, we are very nice and polite to the losers, there are ceasefires and there are united nations peace keeping forces and and and, so in the early days, they had total war where the losers did lose out in a big way, but remember one other historical fact. But think about other cases where war happened, yes, war happened but the victors conquered their lands and also wanted to use that land and civilisation, that's why most wars ended up with the life going on pretty much as it was before the war with a small blip as the victors wanted it to, so this example is rubbish 

The other aspect that Amartya Sen missed out was this argument. Fine, you take on debt, but that debt has to be paid by somebody, right? And the key thing is that the repayment has to be made out of productivity gains. Now think about it, where is the productivity gains? Frankly, there have not been that much of productivity gains. And as I have mentioned before, if you bring on debt and use it to do day to day spend, then that's wasted spend. So the question is, at which point in time do you say, sod this, I am not going to take on more debt? Because I cannot pay for this. Think about it, what can Greece do? Say for argument's sake, we remove all debt today. Make it debt free. Ok? Then what? They will again pick up large amounts of debt and will it get productively employed? How? Where? I doubt it totally. So what you do is to stop taking on more and more debt when you know you cannot repay it. You have to draw the line, reduce spending. If you cannot do it right now, you cannot do it later, but you have to start now. Otherwise you are borrowing from your children and both YOU AND YOUR children will be poorer. 

Nobody likes to spend less, right? But this is the question, how do you do it? When you cannot raise the money / revenues, where do you get the revenues? People have to realise that Keynesian economics which expects investment in dire times to help prime the economy so that it will grow. But what Sen didnt answer, what do you do if the growth doesnt happen or the productivity does not happen? You end up with a giant amount of debt and worse even and end up with more problems. What can you do is to then reduce spend and try to make do with less, save money to reduce the debt and interest payments. You have to reduce spend. Adam Smith's equation, have good economic opportunities for the populace and revenues for the state to provide public services. What if there are no good economic opportunities? Where do they get the monies for the state? Its obviously not coming from the populace, so it comes from others (other countries, other companies, other people like other children in the future). So who pays for this borrowing when the populace isnt earning enough? Nobody is asking that question, the emperor has no clothes. 

So you reduce spend, reduce public spending, tighten the belt, train your populace in better education and skills and slowly build back the economy so that it becomes productive again and has a public sector which is sustainable at their level of development and economic poweress. 

Anyway, have a think about it son, its an interesting argument and in this case, I think the general populace understands, you cannot spend more than you have.... 



Amartya Sen: The economic consequences of austerity 

The judgements of our financial and political leaders are breathtakingly narrow. Nobel Prize-winning economist Amartya Sen considers the alternatives. 

by Amartya Sen Published 4 June, 2015 - 16:33 

On 5 June 1919, John Maynard Keynes wrote to the prime minister of Britain, David Lloyd George, “I ought to let you know that on Saturday I am slipping away from this scene of nightmare. I can do no more good here.” Thus ended Keynes’s role as the official representative of the British Treasury at the Paris Peace Conference. It liberated Keynes from complicity in the Treaty of Versailles (to be signed later that month), which he detested. 

Why did Keynes dislike a treaty that ended the state of war between Germany and the Allied Powers (surely a good thing)? 

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