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Forum Post: chomsky on austerity and recession

Posted 2 years ago on Feb. 3, 2012, 10:56 a.m. EST by flip (5207)
This content is user submitted and not an official statement

"The eurozone crisis is a self-generated one. Europe is attempting to impose austerity at a time of near, if not actual, recession. That's a recipe for disaster. I mean, every economist knows that. In fact, the International Monetary Fund just came out with a study of 150 cases of austerity under recession and they are all a disaster. You can see it in the UK right now; the economic decline has now lasted longer than it did during the Great Depression. Austerity just makes matters worse. What is required is economic stimulus and Europe has the resources for that, which would allow countries to grow their way out of the situation and overcome the decline.

"Admittedly, there is a lot of variation in Europe and Greece has very special problems. But take, say, Spain. Until the housing bubble crashed, the country had a budget surplus. It is not long-term government spending policies that are causing the problems. The Spanish housing bubble, of course, should never have been allowed to continue. But it was a rather local problem, not a fundamental problem of government spending and with stimulation to the economy - Spain should be able to overcome it."

If further and deeper integration is not what the future holds for Europe, then what is the alternative? And how can Europe resolve the current economic crisis? "The right move would be economic stimulation and abandoning the rigid concern of the European Central Bank for a 2 per cent inflation rate. The only argument I can see for that is class war. It weakens labour and helps dismantle the welfare state, but it is not the way out of Europe's economic problems. The ECB is substantially German-controlled – although, I should say, that in the last couple of weeks it has been easing its policies slightly, but it has to do much more. Germany has been a hugely successful economy of late and a large part of its success relies on the fact that it has a European market. It now has a responsibility to carry the system forward towards growth and development; and not sink it deeper into a vicious cycle of austerity, decline of growth and inability to pay debt and so on – which is what is happening. As to this vacuum of leadership among European leaders – well, there doesn't seem to be much sign of change there at the moment I'm afraid."

39 Comments

39 Comments


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[-] 3 points by TommyNYC (730) 1 year ago

"Austerity just makes matters worse. What is required is economic stimulus and Europe has the resources for that, which would allow countries to grow their way out of the situation and overcome the decline."

[-] 4 points by flip (5207) 1 year ago

wow - that was posted 7 months ago and not one comment - how did you dig it up? yes - for all the shit he has taken for the statement, helicopter ben was correct when he said you could drop money from helicopters. get money into peoples hands and the economic problem is solved. then we will have an oil and copper problem but that is another story! a big story no doubt but first things first. did you know that in spain - after they foreclose on your house you still owe the morgtgage! they own your house and you still owe them - crazy!

[-] 3 points by TommyNYC (730) 1 year ago

I believe that I searched the forum for "austerity", and this was one of the most recent posts (can you imagine?). The Chom always has some fire behind his words. I am noticing that almost the entire left (or the entire left?) is unified behind stimulus.

[-] 4 points by shadz66 (17856) 1 year ago

"Chomsky On Adam Smith 'What we would call capitalism he despised'!" - (Noam Chomsky & David Barsamian) : http://www.informationclearinghouse.info/article22546.htm .

Re. this older but relevant 'forum-post', good find and retrieval 'Tommy'.

e tenebris, lux ...

[-] 3 points by flip (5207) 1 year ago

not sure what left you are talking about. seems to me that too many (obama included) are still pushing the deficit reduction line also. that is the last thing we need right now - get money into people's hands - especially the bottom 70% of the population. hire people directly like fdr did!

[-] 2 points by TommyNYC (730) 1 year ago

Check out my new thread on the topic: http://occupywallst.org/forum/unite-to-fight-austerity/

I think that Obama is pushing the deficit reduction line because it is election time (at least I hope so). Also, the teabaggers and Faux news have done a great job of fear-mongerring about the debt. Anyway, do you really think that Obama represents the "left" at this point by any stretch? OK, maybe if you start right-of-center, and then stretch waayyy to the left...

Remember, even FDR gave in to debt-fetishists in 1937. I would say "do what FDR did", only WAY more of it.

[-] 2 points by flip (5207) 1 year ago

obama is not in anyway left from my point of view. fdr did try deficit reduction in 37 and we all know what happened then. anyone paying attention knows what needs to be done. the whole of the eocn profession has been brainwashed - even krugman misses the big picture i think. the economy can be jump started easily but what happens next is the problem. resource scarcity (esp oil!) will hit very hard in a grow world economy so we need to rebuild our infrastructure to prepare for that - i give you max neef (if i sent this to you already i am sorry for the repeat!) - AMY GOODMAN: What do you think we need to change?

MANFRED MAX-NEEF: Oh, almost everything. We are simply, dramatically stupid. We act systematically against the evidences we have. We know everything that should not be done. There’s nobody that doesn’t know that. Particularly the big politicians know exactly what should not be done. Yet they do it. After what happened since October 2008, I mean, elementally, you would think what? That now they’re going to change. I mean, they see that the model is not working. The model is even poisonous, you know? Dramatically poisonous. And what is the result, and what happened in the last meeting of the European Union? They are more fundamentalist now than before. So, the only thing you know that you can be sure of, that the next crisis is coming, and it will be twice as much as this one. And for that one, there won’t be enough money anymore. So that will be it. And that is the consequence of systematical human stupidity.

AMY GOODMAN: So, to avoid another catastrophe, collision, if you were in charge, what would you say has to happen?

MANFRED MAX-NEEF: First of all, we need cultured economists again, who know the history, where they come from, how the ideas originated, who did what, and so on and so on; second, an economics now that understands itself very clearly as a subsystem of a larger system that is finite, the biosphere, hence economic growth as an impossibility; and third, a system that understands that it cannot function without the seriousness of ecosystems. And economists know nothing about ecosystems. They don’t know nothing about thermodynamics, you know, nothing about biodiversity or anything. I mean, they are totally ignorant in that respect. And I don’t see what harm it would do, you know, to an economist to know that if the bees would disappear, he would disappear as well, because there wouldn’t be food anymore. But he doesn’t know that, you know, that we depend absolutely from nature. But for these economists we have, nature is a subsystem of the economy. I mean, it’s absolutely crazy.

And then, in addition, you know, bring consumption closer to production. I live in the south of Chile, in the deep south. And that area is a fantastic area, you know, in milk products and what have you. Top. Technologically, like the maximum, you know? I was, a few months ago, in a hotel, and there in the south, for breakfast, and there are these little butter things, you know? I get one, and it’s butter from New Zealand. I mean, if that isn’t crazy, you know? And why? Because economists don’t know how to calculate really costs, you know? To bring butter from 20,000 kilometers to a place where you make the best butter, under the argument that it was cheaper, is a colossal stupidity, because they don’t take into consideration what is the impact of 20,000 kilometers of transport? What is the impact on the environment of that transportation, you know, and all those things? And in addition, I mean, it’s cheaper because it’s subsidized. So it’s clearly a case in which the prices never tell the truth. It’s all tricks, you know? And those tricks do colossal harms. And if you bring consumption closer to production, you will eat better, you will have better food, you know, and everything. You will know where it comes from. You may even know the person who produces it. You humanize this thing, you know? But the way the economists practice today is totally dehumanized.

[-] 1 points by TommyNYC (730) 1 year ago

Interesting stuff. Krugman is a decent source, and speaks favorably of occupy, but you have a point, he does miss a bit of the big picture. Also, IMO he is too much of an apologist for Obama. Stiglitz is much more globally minded, and isn't afraid to call Obama on his shit.

You may have read this one already, but the excerpt you posted reminded me of it. Stiglitz makes some points about changing our entire vision for society, etc.

http://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201

[-] 1 points by flip (5207) 1 year ago

no time to read the whole thing now but it looks interesting. for sure we have to rework the system in a big way soon. it cannot be centered on building silliness for consumers to buy and throw away. production for use and not for profit is the way to go. shorter work week and day etc - i don't think it will happen without a fight.

[-] 1 points by TommyNYC (730) 1 year ago

I agree that the entire system needs to be over-hauled, so we have to start somewhere.

The reason that I am always railing on about deficit spending on infrastructure as stimulus, is because I feel that its the most urgent issue, maybe even our only hope. The middle class is holding on by a thread and they know it. Democracy is the most vulnerable when extreme inequality is combined with fear.

[-] 1 points by flip (5207) 1 year ago

you are 100% right on infrastructure. stephen leeb has been beating that drum for 10 yrs - he says we have a limited window to build out our future before resource scarcity makes it impossible

[-] 1 points by TommyNYC (730) 1 year ago

I believe in making the best of a terrible situation. When there's a severe economic downturn, the left and traditional academic economists agree. We need to exploit this common ground.

Keynesians, socialists and greens can all get behind alternative energy infrastructure.

[-] 1 points by flip (5207) 1 year ago

yes but will they?

[-] 1 points by TommyNYC (730) 1 year ago

I would describe myself as a social-democratic environmentalist who believes in the basic tenets of Keynesianism. So, you can count me in.

[-] 1 points by flip (5207) 1 year ago

not sure that they care about the poor but they do not want a revolution - the number of uprisings in china each year is stagering and it seems that they understand the need for a economy that will move towards lifting more people out of poverty. also the chinese culture is very different from ours. anyway that is not really the point of me sending that to you. they understand the coming resource shortages and are moving fast to prepare for them - we are not!

[-] 1 points by TommyNYC (730) 1 year ago

ok i see your point.

[-] 1 points by flip (5207) 1 year ago

great - i am sending you an a bit from an investment newsletter that i get each week (investor that agrees with us!) - if you find it interesting you might also look up jeremy grantham "time to wake up investors" - here is leeb - "But in “The End of Progressivism” Sakakibara asserted that the West vs. Soviet Bloc conflict of the Cold War was actually more like a civil war than a war of truly opposed ideologies. For both of the contending parties shared a common core belief that the desired end goal of nations and societies is to acquire more material goods – termed “progressivism” after the concept of the desirability of (material) progress driven by economic and technological growth.

So their conflict had more to do with what was the best way to reach this shared goal – was it capitalism, as the U.S. and West believed, or socialism, as the Soviet Union and its allies believed?

Sakakibara appeared to borrow a page from another American political scientist here, the late Samuel P. Huntington, in suggesting that the real clash still lay ahead, and it would be a clash between the East (represented primarily by Japan and China) and the West.

He characterized the East’s major goal as the creation of a civilization that would live in harmony with nature and the world, and that at a certain point – the point at which the basic needs of its populations were satisfied – would likely seek a kind of stasis. This is in stark contrast to the progressivist approach of the West, with its emphasis on continuous, never-ending growth.

Sakakibara wrote:

“The progressivists’ confidence in human competence and technology could properly be termed a myth because there is no logical reason to believe such path-breaking technological change will occur. It is akin to believing that someday the savior will come down to earth in the form of technological innovation and for some reason reverse all the problems that past progress has wrought.

This myth of technological innovation parallels unswerving faith in economic growth. Despite the structural nature of the problems of inequality and pollution at hand, many economists and politicians paradoxically believe or try to convince themselves that economic growth can solve them. But is this really a logical proposition? It is precisely because of economic growth that the population explosion, rapacious energy consumption, and environmental destruction have proceeded so rapidly and that polarization of the world population into the affluent, poor, and abjectly deprived seems to be reaching its limit.”

We don’t necessarily agree with Sakakibara, but we do believe that a lot of what he says underlies and explains what has happened in Japan over the past generation, and more important, what may happen in China over the next 20 or 30 years.

The broad, big-picture implication for investors here can be simply stated as ‘Don’t trust the Japanese or Chinese stock markets.’

It’s OK to invest in what might be construed as the consequences of the goals of Japan and China; but to invest in their markets, in the same way that we evaluate and invest in American stocks, would be a serious mistake… and likely to continue to result in disappointment for the vast majority of investors.

This doesn’t mean that from time to time we won’t see rallies, even multi-year rallies, in these markets. But it does strongly suggest that the long-term course of Japan and China, as measured by their financial markets, will never parallel ours.

Note that since the time when Sakakibara made his comments in 1995 the Nikkei 225 Index has declined about 40 percent. And yet you have to ask yourself, does this mean that the quality of life in Japan has declined 40 percent? Hardly – not if you believe any of the sociological studies which suggest that countries with less inequality tend to be healthier and happier countries that those with greater inequality. It’s a fact that during this period of utterly dismal market performance the inequalities in Japan have decreased, while the health and longevity of the society as a whole have dramatically increased.

Currently Japan enjoys the highest life expectancy of any of the larger nations of the world. (United Nations’ figures for 2005-10 list Japan as first with an average life expectancy of 86.2; the U.S. is 38th, with an average of 78.2) And, again, despite miserable economic statistics as reflected in its financial markets, there’s also much less poverty in Japan than in most Western countries.

Just to be clear, we are not citing these facts because we want to praise Japan. Rather, we simply wish to point out that the way Japan measures progress appears to be wholly consistent with what Sakakibara said almost a generation ago – and is apparently independent of (in fact, contrary to) any way of measuring material growth that we in the West subscribe to.

Is that good or bad? We don’t have an opinion. All we can say is that it’s different. And therefore, it makes little or no sense for U.S. investors to invest in Japanese stocks with the same perspective they have when investing in U.S. stocks.

Now, when it comes to China, today it is clearly behind where Japan was in 1995. The calculus here is more difficult because China is still in the process of providing sufficient material well-being to the vast majority of its population. So at this point, it can’t afford to rest on its laurels and focus on the same goals that seem to have defined the Japanese ethos over the past generation.

But it does seem clear, at least from our reading, that the Chinese are not out to conquer the material world, and that the resource scarcity they are creating, while dangerous to our own way of life, and consequential in multiple and untold ways, is not designed to destroy us. Rather, it’s basically a matter of, as psychologist Abraham Maslow might put it, providing their basic needs.

The question facing the U.S. and China is can these basic needs actually be provided with the resources that are currently available in the world? On this, we’re not optimistic.

And for this reason, we continue to suggest that investors at least for the long term, and despite recent weakness, continue to favor commodity stocks in their portfolios. We continue to single out gold because of its value as a currency when resources are scarce and silver because it is not only regarded as a currency but is a critical energy metal, which will be needed by both the Chinese and the Japanese.

But equally important, as with Japan, with very few exceptions we would not invest in Chinese stocks. The Chinese ethos, we believe, is ultimately not to maximize profits, but rather to maximize well-being. Nowhere has this been more obvious than in the solar industry. Those Chinese solar companies were not state-owned enterprises, but they still, at the behest of the Chinese government, dramatically underpriced U.S. companies in their effort to move up the manufacturing learning curve. Ditto for wind companies.

This is especially true if you invest in companies (and industries) which the Chinese government regards as strategically critical. They apparently do not give a damn about maximizing profits, discounted cash flows or any other metric that is so familiar to Western investors. On the one hand this is reassuring, in that it tells us that on a long-term basis (which for China could be a generation or more) they are not “out to get us.” And indeed, they might even be willing to work with us.

We doubt that the Chinese care whether we live better or worse than they do in a material sense, but rather their main goal is that the vast majority of their population live well enough so that health, life expectancy, pollution, etc. are no longer questionable factors of their existence. Clearly, they have a long way to go.

I’m writing this in a way as kind of an epilogue to my most recent book, Red Alert. I still believe everything Greg Dorsey and I said in it still holds, and that China’s actions could indeed represent a major threat. But we also think it’s critical to recognize that their ultimate goals are far different from ours.

That’s what makes it a terrible mistake for investors to use Western measuring stocks as a way of assessing Chinese and Japanese success. And it’s equally mistaken to view China as a natural enemy. From my ‘the glass is half-full’ perspective, I do feel that both civilizations, Eastern and Western, can reach some sort of harmony – if for no other reasons than the consequences of not doing so would be very severe.

[-] 1 points by TommyNYC (730) 1 year ago

Do you believe that the powers-that-be in the PRC actually care, for the most part about the well-being of their poor? Have they not simply slipped into totalitarian crony capitalism?

[-] 0 points by Mooks (1985) 1 year ago

He is likely pushing it because it makes him look like less of a hypocrite for the things he said about the debt back in 2008 before he went on to almost double it.

[-] 1 points by TommyNYC (730) 1 year ago

Mooks, it looks like you just don't get austerity. The president had to increase the national debt. He had no choice. That's because he inherited a terrible economy.

Bush II on the other hand, didn't have to fund two major wars and give tax cuts to the rich.

[-] 1 points by Mooks (1985) 1 year ago

I completely get it haha. I am just saying that is why Obama is saying what he is saying. It is one less attack line the GOP can use against him.

Isn't funding a war good though?? Jobs at defense companies are usually pretty good jobs. You just said in another thread yesterday that their is no such thing as wasteful spending.

[-] 1 points by TommyNYC (730) 1 year ago

No, I never said that "there is no such thing as wasteful spending."

Funding war is bad, because war sucks.

Yes, I'm hoping that Obama is posturing like a deficit-hawk in order to appease conservatives.

[-] 0 points by Mooks (1985) 1 year ago

OK, my bad, you actually said that "no one believes in wasteful spending." Yes war does suck, so war funding is bad. You have to admit though, it creates a ton of good jobs and more defense spending would create even more good jobs. Isn't that the core of Keynesian economics? After all, the government funds a lot of stuff that "sucks." I am as pro-choice as the next guy but I think nearly everyone agrees that abortion sucks. Right? It certainly isn't something to be happy about. Should we cut funding for that too?

[-] 1 points by Mooks (1868) 23 hours ago Is it still austerity if you are only cutting wasteful spending? ↥twinkle ↧stinkle reply edit delete permalink

[-] 1 points by TommyNYC (574) 22 hours ago No. Nobody believes in wasteful spending. This guy does a pretty good job of explaining Keynesian fiscal stimulus and the Obama stimulus. http://www.youtube.com/watch?v=k0lc1dg8MVg Here is a great clip of Paul Krugman on Maddow, explaining why austerity sucks, and the Obama fiscal stimulus didn't go far enough. Watch 1:35-3:04 http://www.youtube.com/watch?v=WhA9jzLtL70 Here's a good one too: http://www.youtube.com/watch?v=QHqoxNOYIOo ↥twinkle ↧stinkle reply permalink

[-] 2 points by TommyNYC (730) 1 year ago

You should actually watch those videos, if you are seriously asking me about the core of Keynesian economics.

It's obviously much better to get the stimulus from something positive. War is negative. We should avoid war by spending on programs that improve the public good.

[-] 0 points by Mooks (1985) 1 year ago

Obviously, I am just playing devil's advocate.

Seriously though, what about something as simple as tax rebates for the lower and middle classes? Instead of using $800 billion to spend on stimulus, why not just give people making under $250K $800 billion in tax rebates? It would increase the debt by the same amount, cut out a bunch of bureaucracy, and prevent stimulus money from going to the super wealthy.

[-] 2 points by TommyNYC (730) 1 year ago

There are two kinds of Keynesian stimulus, one in the form of govt spending and the other in the form of tax cuts. I agree there should be tax breaks on lower incomes.

That doesn't solve unemployment though. We need the government to provide jobs.

Tax cuts don't improve infrastructure either.

[-] 0 points by Mooks (1985) 1 year ago

Fair enough. Tax cuts are one of those things that no one will argue against though, especially for lower incomes.

Wouldn't millions of middle class families having an extra $5K to spend create a bunch of jobs by increasing demand for all kinds of products?

I agree though that it wouldn't do much though for infrastructure.

[-] 2 points by TommyNYC (730) 1 year ago

For the record I'm far from an expert. I took a few econ classes in college a few years ago and I read. But that's the beauty about some of these theories, they are really pretty easy to explain if you have an open mind.

Yes, tax cuts help. But we have nothing to lose investing in our infrastructure. Because the infrastructure is currently so piss-poor, it's a great investment.

It is virtually impossible for us to over-invest in infrastructure at this point.

[-] 0 points by CitizenofAmerika (-71) 1 year ago

You people have no concept of reality.

[-] 1 points by flip (5207) 1 year ago

can you fill me in

[-] -1 points by yobstreet (-575) 1 year ago

I don't think Chomsky has any idea what he's talking about. Germany's deficit this year, I believe, is a projected 31 billion, 9 billion of which goes directly to euro stabilization. How much should they borrow so others do not have to?

[-] 1 points by flip (5207) 1 year ago

ou sentence is incorrect - it should have been - "i don't think."

[-] -1 points by yobstreet (-575) 1 year ago

Well the article dates to February... an MIT professor should not be doing political commentary of this sort on European affairs.

[-] 1 points by flip (5207) 1 year ago

only qualified economists - maybe glen hubbard

[-] -1 points by yobstreet (-575) 1 year ago

There's what, 80 mil people in Germany? They should be making these decisions, not some MIT professor who absolutely no clue as to daily life for the people of Germany.

[-] 2 points by flip (5207) 1 year ago

wrong again yobbie - don't you ever get tired of saying foolish things. first of all you have no idea what he knows and he is not making any decisions for them but voicing an opinion - do you know the difference? read some of noam's work - just two books - and then get back to me - no rush - it should take you a few weeks since you spend too much time here!

[-] -1 points by yobstreet (-575) 1 year ago

No I don't agree with that... I don't believe american intellectuals should be attempting to influence national leaders on something they have absolutely no stake in whatsoever; these decisions should not arrive by way of presidential pressure but by way of their own people.

[-] 1 points by flip (5207) 1 year ago

the only intelligent comment you ever made was about watching trainspotting

[-] -1 points by yobstreet (-575) 1 year ago

I seem to watch a lot of foreign films these days... the movie was average but the quote was f*cking great.