A Little Friday Mass Media

Operating on the assumption that with weather like this, after our bad weather experiences, many of you are looking to be outside, not focusing on blog reading. So to ease that transition into the weekend, a focus on Friday topical humor in more audio and visual forms, beginning with a wonderful Marke Fiore animation:


From the fantasy world of animated fiction, we make what is in this case a very short jump to the objective reality of economic facts and figures. What Fiore does with humor and animation is done by serious experts of economic history, here, expounding on why Keynes was right, and how right wing ideology doesn't work in practice, and why. It isn't ONLY true of Latvia that austerity is a disaster, not a success. It is true in other countries as well - Ireland, Sweden, Spain, Greece, the UK.

US, or Us.

From the Guardian, earlier this year:

Why expansionary austerity doesn’t add up
Rex Nutting
Commentary: If everyone tries to save at once, the economy collapses

Meet Richard Koo, leading proponent of the idea that the global economy is now suffering through what he calls a balance-sheet recession. He says that austerity will only make matters worse, leading to a lost decade. The problem in the economy, he says, is that households and businesses are frantically paring back spending and reducing debts, and it does no good if the government follows suit.

If we all try to cut back our spending, then nobody will have any income. Why? Because your spending is my income, and vice versa. If you add up all the spending, it will equal all the income.

Koo, who is chief economist of the Nomura Research Institute and a leading expert on Japan’s lost decade, says that ordinary monetary policy is ineffective in a balance-sheet recession, because the private sector has little desire to borrow money at any interest rate, even at zero. At the same time, banks are reluctant to lend to the households and the businesses that took on too much debt during the bubble years. Banks themselves are repairing their balance sheets by reducing their lending.

“The key difference between an ordinary recession and one that can produce a lost decade is that in the latter, a large portion of the private sector is actually minimizing debt instead of maximizing profits following the bursting of a nation-wide asset price bubble,” Koo wrote in a recent paper. Read Koo’s paper “The world in balance sheet recession: causes, cure, and politics.”

And we have, from the Chicago Tribune and Reuters, this report on Sweden:

Wealthy Sweden spending too little: policy adviser

May 14, 2012
Niklas Pollard and Johan Sennero
Reuters

STOCKHOLM (Reuters) - Sweden's centre-right coalition government is being too tight-fisted with public finances that are likely to remain strong for years to come, a think tank charged with evaluating policy said on Monday.

The Swedish Fiscal Policy Council, a state agency that evaluates government policy, said it saw little risk the country would breach spending ceiling rules in the coming years and instead urged the government to slacken spending constraints.

Unlike most countries in Europe, strong export revenues and firm domestic demand have helped Sweden rapidly shrink its debt as a percentage of gross domestic product (GDP) over the past decade, leading to rising net wealth for the public sector.

"Sweden is becoming an oil country, only without the oil," Council Chairman Lars Jonung told a news conference.

While relentless austerity measures are driving debt-laden countries in the euro zone into recession, the government forecasts Swedish public debt to fall to 37.7 percent of GDP this year and a mere 22.5 percent in 2016.

Many economists expect official data on Tuesday to show the euro zone as a whole entered its second recession in just three years at the end of March, adding to pressure on the bloc's leaders to moderate austerity with measures to stimulate growth.

Sweden has remained outside the euro zone after failing to get a public mandate to give up its crown currency.

The Swedish council said the policy conducted by Finance Minister Anders Borg tended to entail extra safety margins in terms of public spending compared with what was required under law, especially in times of economic uncertainty.

The slowdown as the euro sovereign debt crisis worsened during the second half of last year would thus have warranted a more expansive policy by a government that has made keeping a role as guardian of public finances its top priority, it said.

"One should have been a bit more generous," council member John Hassler said.

EUROPE ON KNIFE'S EDGE

Borg defended his position, saying the debt crisis had led to a rapid worsening of Sweden's public sector finances.

"In a normal situation extra safety margins beyond what is required in fiscal policy framework are not needed. But what we have experienced lately can hardly be described as a normal situation," he said in a statement.

It is worth noting that Sweden spends roughly twice what the U.S. spends on their infrastructure and social safety net - somewhere in the vicinity of 50%.  If done well - a key IF - it appears very much NOT to be a bad thing for capitalism, but rather supports capitalism functioning well by providing greater stability for their economy and their society.  Sweden has a much better outcome for example in terms of cost effective health care, while that health care is also BETTER than the standard of health care in the United States, where there are large numbers of people dying because of a lack of health care, or experiencing economic disaster from the costs of the health care they do obtain.  Sweden spends more on education as well, with a better outcome than the United States too. 

Conservative austerity appears to be more an emotional response to our crisis than an intellectual one; it is based on fear, not logic, not analysis, and certainly not a solid economic understanding.  While more Keynesian style spending might seem counter-intuitive for conservatives, or more taxes for the rich -- which has been part of the Swedish success model -- that doesn't make it wrong. 

What we need to shrink in this crisis is not government spending, it is right wing amygdalas.  We need to be fact and analytically based, not fear and rejection of intellect.