Austerity is Alive and Well in America
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A common criticism of the so-called “libertarian conservative” strains of European and U.S. economic analysis is that the populations of these regions
[See the full post at: Austerity is Alive and Well in America]Glad to see the public sector finally joining the party. They have been watching the private sector job loss movie for far too long from their taxpayer provided ivory towers. Perhaps it will have greater meaning for them now when they read about a major corporation moving to China or India, double digit youth unemployment rates,untold millions on food stamps etc. A re awakening of the communal spirit perhaps. I haven’t been this sad since I read about Nancy Pelosi losing her private 747 and its attendant chef and bartender perks.
I never cease to be amazed a how people think that by cutting Goobemint payroll and budgets you can possibly work your way into solvency. Every worker that is dropped from his Goobermint Job no longer can pay his Mortgage and no longer pays in any Taxes. For as long as it exists anyhow, he also starts to draw money from the Unemployment Isurance Ponzi.
Same Goobermints cutting budgets also stop hiring “private” contractors to do any number of tasks, from clearig the snow off the street to repairing the potholes left behind in the spring thaw. Still MORE unemployed folks i the “private” sector now on the UE roles as Da Local Goobermint slashes the budget.
There is I think a false dichotomization between what is the “public” payroll and the “private” one. Just about everything depends on Da Goobermint pushing out money into one sector of the economy or another and then gettig it to circulate around. The problem here is that Public or Private, the money is not circulating. Just about everything is a Money Losing proposition, so both Public and Private in order not to Lose Money, you stop spending it. Except once you STOP spending, the whole economy goes into a tailspin.
The “Private” sector is not going to rebound here once you evicerate Da Goobermint budgets. It will just wither and die right along with that process. In fact it probably collapses faster than Goobermint does because Goobermint is the source of the money in the end, even if it is “privatized” money creation.
The State will collapse in its entirety if it does not succeed in creating productive work for people to do in the society. A failed state means no working money, because the state is the SOURCE of the money. Needless to say, you do not create productive work for people simply by cutting out their current jobs, unproductive as they might be. You gotta replace it with SOMETHING, and nobody is replacing it with ANYTHING.
This is a real problem.
RE
@ RE So the crashed out no job private sector has to provide full employment and outlandish wages to the unproductive public sector in order to keep the ship afloat? You could be correct, but as you say RE, this entire situation is a real problem that has to be solved very soon.
… this entire situation is a real problem that has to be solved very soon.
What is the solution when you spent money you don’t have?
Spend more money that you don’t have!!!Give me a break!!!
The solution will be the one that does not do any harm to the rich.
After all, they do own the megaphone, (even at the local level).When the local rich people are getting hurt, then you will see the first wave of the exodus from dodge city to their prepared doomstead.
I recently read about how people working in relatively secure jobs in the public sector in the USA are paid much more than people doing similar work in the private sector. This is clearly a nonsense.
IMHO, they should keep these public-sector jobs, but reduce their spending by reducing the pay.
RE seems to be a firm believer in the “broken window” theory of economics – where it does not really matter what the spending goes on.
In the UK, I recently read that people in the private sector would have to pay 10 times as much into their pension in order to get what government employees get:
The only thing I am sure of is that all of this nonsense is going to be swept away. As for the time-scale, I am as clueless as S&I
The next blockwatch captain will be a cop moonlighting to subsidize his lifestyle.
https://www.zerohedge.com/news/greece-launches-rent-cop-fill-empty-public-servant-coffersGolden Oxen post=2093 wrote: @ RE So the crashed out no job private sector has to provide full employment and outlandish wages to the unproductive public sector in order to keep the ship afloat? You could be correct, but as you say RE, this entire situation is a real problem that has to be solved very soon.
The “private” sector can’t provide full employment or outlandish wages since other than the TBTF Banks who get intravenous injections of Public Money, the private sector is broke.
The only way to keep the ship floating at this point if you are trying to do it on a monetary level is to repudiate all the debt and go full on Commie hiring people for Goobermint work projects. There isn’t profit to be made out in the Private sector, it always just sieves off the surplus and waste of what Goobermint supports, like the Railroads or the Interstate Highways etc. Read Large Public Works Projects I&II to understand how the money flows from Goobermint to the bottom layer of commerce.
https://www.doomsteaddiner.org/blog/2012/03/03/large-public-works-projects-part-i/
https://www.doomsteaddiner.org/blog/2012/03/05/large-publics-works-projects-part-ii/
RE
I’ve never understood the US property tax system. The current problem of reduced revenue for local goverment does not exist here in New Zealand. Here, the local goverment decides how much money it wants and sets the property taxes accordingly. If you don’t like the hike in taxes then you vote in local politicians who promise to reduce the
budget(or borrow to deffer the tax hike) Seems a much better system
to me.Nassim post=2095 wrote:
RE seems to be a firm believer in the “broken window” theory of economics – where it does not really matter what the spending goes on.
Where do you get that interpretation from?
The only thing I am a firm believer in is that monetary systems are the Root of all Evil. NOBODY has any “money”, its conjured up out of thin air. You can make it disappear with a stroke of a pen in Bankruptcy and you can recreate it with the stroke of a pen in a Bankster’s Loan department. Henry Ford went BK I think it was twice before he finally got the Model T’s rolling off the production line.
What I am telling you is that Goobermint shutting down in concert with no money flowing out through Loans to “private” industry means you totally lock up commerce. What Moneybags is going to step up to the plate here to employ anybody to do anything? Apple will contract out to Foxconn for Chinese Slaves for as long as Amerikans still have some working money to buy I-phones, but that is about it here for the “private” sector.
Just how deep does this collapse have to go before people grasp there ain’t no such thing as a “private” sector? There is just the very well connected top of the food chain folks who can loan themselves endless money on the public dime, and when they stop building railroads and carz because said biznesses function strictly by wasting resource, the whole house of cards collapses.
RE
The idea that state and local government budget problems will be a big driver in a deflationary depression is misguided. Look at it this way. All state and local govt. pension plans COMBINED, are estimated to be UNDERfunded by somewhere between $1 trillion and $3 trillion. Since these entities can’t print or coin money, there is a max $3 trillion of deflationary forces, as perceived pension wealth is destroyed.
On the other hand, the federal govt. has over $60 trillion in unfunded liabilities, and they CAN print money. Hello hyper inflation.
I wrote an article last year addressing the problem of Goobermints downsizing their workforce, so I put it up on DD.
https://www.doomsteaddiner.org/blog/2012/04/08/scapegoating-da-goobermint-unions/
Meanwhile, folks like Mish are having their Wet Dream come true of the Goobermint Unions being destroyed. Sadly Mish, this isn’t going to solve the economic problems, it will just make them WORSE. Laying off Goobermint workers and cutting pensions just means that you will have fewer people with disposable income to keep the consumer based economy running. This will drive more private biznesses which exist as a result of their disposable income to go belly up also. Austerity doesn’t work to make you more solvent in such a system, it just drives a deflationary spiral. It is irrelevant here how much money Helicopter Ben prints, it just is not getting distributed out into the consumer economy. The fake money eventually will go up in smoke. Prices in commodities will rise past the ability of the people to buy them, there will be excess product causing more companies to fail, prices will fall and speculators who did not exit fast enough will get hammered.
Welfare Limits Left Poor Adrift as Recession Hit
Faced with flat federal financing and rising need, Arizona is one of 16 states that have cut their welfare caseloads further since the start of the recession — in its case, by half. Even as it turned away the needy, Arizona spent most of its federal welfare dollars on other programs, using permissive rules to plug state budget gaps.
In case you skipped what I previously said.
…The solution will be the one that does not do any harm to the rich.
After all, they do own the megaphone, (even at the local level).pipefit post=2101 wrote: The idea that state and local government budget problems will be a big driver in a deflationary depression is misguided. Look at it this way. All state and local govt. pension plans COMBINED, are estimated to be UNDERfunded by somewhere between $1 trillion and $3 trillion. Since these entities can’t print or coin money, there is a max $3 trillion of deflationary forces, as perceived pension wealth is destroyed.
There are several logical flaws contained within your post. One, you are not properly describing the way debt deflation works. It is rooted in positive feedback mechanisms which greatly magnify the impact of the deleveraging. For ex., $3T in pensions wiped out does not mean only $3 in wealth disappears from workers/households, but much more, because it will feed back into depressed spending, business revenues, taxes, increased unemployment, etc., etc.
As to your other point, you are simply assuming the Fed government will print to cover any and all shortfalls in entitlement programs, which is unsurprisingly what most HI advocates like to do. You also seem to be assuming a deflationary process is not already underway, when it actually is. That’s what job losses, lower incomes, fewer benefits, lower profits/revenues in private/public sector, lower property valuations, lower investment/spending, etc. means – deflation.
ashvin post=2106 wrote: [quote=pipefit post=2101]The idea that state and local government budget problems will be a big driver in a deflationary depression is misguided. Look at it this way. All state and local govt. pension plans COMBINED, are estimated to be UNDERfunded by somewhere between $1 trillion and $3 trillion. Since these entities can’t print or coin money, there is a max $3 trillion of deflationary forces, as perceived pension wealth is destroyed.
There are several logical flaws contained within your post. One, you are not properly describing the way debt deflation works. It is rooted in positive feedback mechanisms which greatly magnify the impact of the deleveraging. For ex., $3T in pensions wiped out does not mean only $3 in wealth disappears from workers/households, but much more, because it will feed back into depressed spending, business revenues, taxes, increased unemployment, etc., etc.
As to your other point, you are simply assuming the Fed government will print to cover any and all shortfalls in entitlement programs, which is unsurprisingly what most HI advocates like to do. You also seem to be assuming a deflationary process is not already underway, when it actually is. That’s what job losses, lower incomes, fewer benefits, lower profits/revenues in private/public sector, lower property valuations, lower investment/spending, etc. means – deflation.
This is exactly correct. The Hyperinflationista only sees the price Inflation of essential good ithe economy, he does not recognize the deflation in the wages and the bankruptcies of many biznesses and the layoffs of workers both public and private as a part of the spiral.Far as the $3T in unfunded local pension liabilities go, they will get rolled into the same palce that all failed pension funds do, a Federal Resolution scheme which will pay out some level of penies on the dollar there to the pensioners. The alternative of course is to have a lot of Graybeards rummaging through garbage cans, which this society is not quite ready for yet.
Da Goobermint printing money to make these pension payments is NOT sufficient to drive a Hyperinflation, because even at current levels of payments penisoners cannot afford to pay out more money for their essentials. Hyperinflation would only occur if Da Goobermint started handing out MORE money to pensioners, but it is not doing that, it is CUTTING their bennies. Whe Da Goobermint starts handing out Pension Checks with multiple Zeros attached to the end, then you get your Hyperinflation. Long as Da Goobermint starves out the pensioners, all you get is some inflation of necessary goods, but deflation everywhere else you can see. I will not hold my breath waitig for Helicopter Ben to drop Megabucks on Pensioners as he does on the TBTF Banks.
RE
I notice a few high-and-mighties here relishing the thought of public employees going on assistance. As a public employee myself, at the municipal level, I’d like to clear up a few misconceptions.
Most of us are not making great money, unless you think $29K a year for 40 hours a week, no overtime, and dozens of evening meetings (unpaid) to attend, is something to drool over. I accepted a gigantic pay cut to take this job, partly so I could get some lousy health insurance and the bare possibility of a pension (which, since I live in New York State, will probably vanish long before my retirement), and partly so I could work a job that gave something back to my community, instead of working for corporate attorneys helping to make the corporations richer and the world poorer.
I’d also like to remind people that if it weren’t for public employees, you wouldn’t have streets to drive on, safe water to drink, semi-efficient sewer service, public parks and pools, and all the other little amenities that everyone tends to forget about — until they’re broken or gone. Then the screaming starts. As a municipal employee, I receive calls from irate citizens telling me there’s a dead bird in their backyard, and what do I intend to do about it? Why isn’t there a nativity set up in the public park by Thanksgiving? My neighbor’s building a deck and I don’t see a permit in his window, why aren’t you ticketing him? I have cold water but not hot water, what am I paying my taxes for? And all this in upstate New York, the reddest of the red, where there are maybe three Democrats in the entire county and everyone else is a war-loving, big-government-hating Republican; yet when anything goes wrong or they have a grudge against a neighbor, they run to get the government involved.
Our State retirement plan is in the same trouble every other state’s is. Our city’s contributions to the plan have gone from approximately $150,000 a year to just under $1,000,000 a year. And I work for a city that has a population of about 7,500. That’s a quarter of our entire budget! Can our property taxes cover that? Of course not. The city has more than doubled our health insurance contributions (having an alderman who is an insurance agent hasn’t helped). A large part of our workload is fulfilling unfunded State mandates. And the staff here has been cut by more than half over the last 10 years.
We are the workers who get things done. The elected officials, unfortunately, are another matter. They are amateurs, they don’t know how things are run but they sure think they do, and everything we do, every dime we earn, is dependent on their approval.
So I hope that when some people get their self-righteous panties in a wad, they remember that we are all people, we all have to live in this world, we’re all stuck in the money system, at least until it collapses, some of us are trying to do decent work that helps out our communities, and we’d like to be paid a decent wage to do it. Without having folks who haven’t thought things through blaming us for all their ills.
Kiwidoomer,
Some states have the property tax system you do.
The US states are clearly not soveriegn, but they do have far more autonomy than the internal subdivisions of most countries. (Yes, there are other countries like this.)
ash–“You also seem to be assuming a deflationary process is not already underway, when it actually is. That’s what job losses, lower incomes, fewer benefits, lower profits/revenues in private/public sector, lower property valuations, lower investment/spending, etc. means – deflation. “
I think most people agree that there are inflationary and deflationary forces at work, and the debate is about which ‘side’ will win the tug-of-war. Certainly, the destruction of pension wealth and jobs is one of the deflationary forces.
Let’s think this through. As a person’s state or local (or private) pension (or employment) gets destroyed or reduced, that will result is a loss of purchasing power. It will also push that person closer to food stamp eligibility. Food stamps are about as close to ‘money’ as anything out there. Given the strength of the farm state lobby, working in concert with advocates for the poor, this is one program that will NOT be cut, but rather expanded.
This process of state/local/private pension destruction will make millions even MORE dependent on social security, medicare, military pensions, VA benefits, federal govt. worker pensions, etc. This increased dependency will make even HARDER to reduce these programs. And since these programs will be funded almost entirely with ‘out of thin air’ money, the result will be hyper inflation.
As to your statement that we are already in a ‘deflation’, then why are consumer and producer prices galloping higher? House prices are down, and hundreds of other things are higher. You go to shadowstats and you can see an honest summary of where the composite is going. Maybe, at some point, the deflationary forces will over take the inflationary ones, but they haven’t done so yet.
@ pipefit Right on pipefit. Would love to know where some of the posters here buy their groceries, gasoline, heating oil etc. The big real estate bust is a crock of —- also. Shanties around my neck of the woods that sold for 18,00 thirty years ago are now at 290, 000 after having collapsed in the words of the deflationists from 415, 000, due to reckless speculation. What a joke. Hyperinflation here we come. Shadow Stats is a great site. Mr Williams is a no nonsense straight shooter.
Hi Ash,
this is off topic, but this is the last week (through April 15th) for people in CA to sign a petition to force Big Finance Capital Agra / Chemical to label genetically engineered pesticide “food.” For those that don’t know, the “food” is now the pesticide – and then you eat it. Or the food can be saturated with pesticide, like RoundUp Ready, and then you eat it. And so do our children.
Serious human studies? “Naw, no need, nobody has proven it is bad for humans because we don’t do the tests.” – Big Agra / Big Chem.
A quick note and link to
https://www.labelgmos.org/ (a link to find a sign up location can be found just below the front page’s main graphics)
and
https://www.responsibletechnology.org/health-risks
This is important and society can get a “win” against the financial oligarchs that treat society like a mad science experiment.
Thanks for the considerations.
The Tri-“this is off topic, but this is the last week (through April 15th) for people in CA to sign a petition to force Big Finance Capital Agra / Chemical to label genetically engineered pesticide “food””
Actually, it is not entirely off topic. Surely you have been following the recent news item on ‘pink slime’ in ground beef. Many retailers are pulling the slime containing product out of their meat coolers, because of the out cry. This will force most others to follow.
The ‘pink slime’ is a form of austerity. Without it, meat prices will be higher. They failed the public relations game. Whether it is safe to eat or not is in the same realm as your ‘Con Agra’ situation, I think.
Inflation is so bad, at the wholesale level, the food marketers are having to pull out all the cost cutting stops to avoid giving consumers sticker shock. Whether it is ‘pink slime’ in beef, or deceptive package size, or other forms of filler and reduced quality, they will do what it takes to deceive the customer, or be pushed off the supermarket shelves by more marketing savvy competitors.
Triv,
The pink slime story is very very long.
There were exhaustive studies done on how much ammonia was required to render the stuff safe. The studies did not measure the resulting taste or smell.
As you may know, ammonia is one of the many smells that rotting food may develop. So when the stuff first went out, cooks refused to serve it because they sincerely thought it was bad. The vendors cut back on the ammonia (illegally) and sure enough, people started getting sick. Even the USDA had to crack down.
The latest go-round is to blend it in to real hamburger at a level most people won’t detect.
FrankRich-Thanks for the update. I knew most of that, but not all. I think the point is that the ‘pink slime’ is the sort of thing one would expect in hyper inflationary environment.
If we were in a deflationary environment, you would hear stories about how companies are cutting prices or increasing quantity, or improving quality, at no extra cost, in order to win market share. None of that is going on. Just the opposite.
What an excuse they now have to double the price of hamburg. We tried to help you and provide you with safe, affordable, nutritious beef laced with ammonia and pink slime, but alas, we are bowing to your wishes and giving you what you want at double the price. We were trying to do God’s work, and like Goldman Suchs we were misunderstood. I can hear them roaring with laughter at today’s chateaubriand and French chateau wine luncheon.
pipefit post=2115 wrote: Let’s think this through. As a person’s state or local (or private) pension (or employment) gets destroyed or reduced, that will result is a loss of purchasing power. It will also push that person closer to food stamp eligibility. Food stamps are about as close to ‘money’ as anything out there. Given the strength of the farm state lobby, working in concert with advocates for the poor, this is one program that will NOT be cut, but rather expanded.
This process of state/local/private pension destruction will make millions even MORE dependent on social security, medicare, military pensions, VA benefits, federal govt. worker pensions, etc. This increased dependency will make even HARDER to reduce these programs. And since these programs will be funded almost entirely with ‘out of thin air’ money, the result will be hyper inflation.
I have never heard the argument that more people being forced onto food stamps will lead to a wage/price spiral into high inflation or HI. So you get points for being unique, but that’s about it. As RE said above, replacing people’s salaries and benefits/pensions with welfare benefits for gruel and ram-shack housing is not a road to HI. In addition, I disagree with the premise that everyone who loses a pension will end up qualifying for these benefits, instead of simply being forced to cut back on how much they spend. You also seem to ignore the fact that many people are going and will continue to go homeless, hungry and/or die, precisely because they are so dependent on a system of public benefits that no longer exists for them.
As to your statement that we are already in a ‘deflation’, then why are consumer and producer prices galloping higher? House prices are down, and hundreds of other things are higher. You go to shadowstats and you can see an honest summary of where the composite is going. Maybe, at some point, the deflationary forces will over take the inflationary ones, but they haven’t done so yet.
Prices are not a great indicator because they are backwards-looking and very relative. “Galloping higher” compared to what? The price of crude is still lower than it was 4 years ago, even though its affordability for most Americans has plummeted. There is also a huge amount of leveraged speculation that goes into energy/commodity prices, and we all know how that ends up when financial panic sets in. With regards to housing prices, home equity is the single biggest asset on the average middle to upper-middle class American’s balance sheet, so significantly lower property valuations, which only have further to fall, is a big deal in terms of reduced aggregate demand.
pipefit post=2115 wrote:
This process of state/local/private pension destruction will make millions even MORE dependent on social security, medicare, military pensions, VA benefits, federal govt. worker pensions, etc. This increased dependency will make even HARDER to reduce these programs. And since these programs will be funded almost entirely with ‘out of thin air’ money, the result will be hyper inflation.The Pentagon has been funded for 30 years out of “thin air money”. Why did that not cause a hyperinflation?
RE
Hey Ash,
Thanks for reminding me to go to the front page for the daily news. Those are really good, but with my book mark on the topics page I forget to go to the actual front page. Hmm, can a link be put in the Comments section or something? Just being lazy here. (And I for one like your writing style and approach to topics, but then I expect we have a similar political view point ; )
This quote from one of the articles there seems good to plug into this conversation. From my perspective it looks like we have both inflation and deflation at once. With no job or money, the price of food goes up sky high. When there is no money, all prices are “inflated” for those who are locked out. Lost job = deflation, buying food with no money = inflation.
“Feeding America Food banks have seen significant increases in the price of household staples like milk, which increased in price by nine percent in 2011, and peanut butter, which costs 38 percent more now than it did a year ago. Rising food prices also mean that healthy, nutritious food becomes further out of reach for many of the clients served by Feeding America, further increasing their reliance on food banks.”
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