22 Dec 2011

The Rumors of Irish Austerity Are Greatly Exaggerated

Economics, Krugman 60 Comments

A certain Nobel laureate has been pounding the drums lately (e.g. here), pointing out that the awful euro economies prove just how bad fiscal austerity is. In particular, the case of Ireland shows that–as our Keynesian friends like to put it–“contractionary policy is contractionary.”

Now in fairness, for all I know maybe lots of people have been pointing to Ireland as a shining success story. I don’t know of any Austrians who have done so, but maybe George Will or somebody has. (I come back to this in the Appendix below.)

If so, then said austerians were being sloppy, because Ireland at best is only relatively engaging in austerity. Here are the figures for its government budget surplus/deficit as a share of GDP:


So let’s review, to make sure you know how to understand how a Keynesian uses these types of labels. Herbert Hoover engaged in liquidationism, with his last budget deficit of 4.5% of GDP plunging the economy into the worst single-year performance in US history. In the following years, thank goodness FDR (though far too cautious at the time) allowed deficits that averaged 5.1% of GDP, which propelled the economy to its fastest expansion in history, an expansion that was unfortunately aborted when FDR chickened out in 1937 and tried to trim the deficit. When the Obama Administration ran a deficit of 10% of GDP in 2009, Krugman declared that “Big Government” (his words, not mine) had spared the US from another Depression. And now, when the Irish government runs deficits of 12% and 10.8%, this is a period demonstrating the utter failure of fiscal austerity. Everyone got that?

Incidentally, one might argue that it’s unfair for me to look at deficits. After all, the Keynesian argument is that cutting spending will hurt the economy, in turn making tax revenues fall–thus aggravating the original problem.

Sure, then let’s just look at government spending in absolute terms for the Irish government (billions of euros):


So when we are talking about the massive textbook fiscal austerity plans of the Irish government, note that they haven’t even cut spending back to 2007 levels, at the peak of the global boom. It’s true, the Irish government has actually cut the absolute amount of its spending the last two years, and admittedly that’s pretty amazing as far as governments go. But all it really means is that they are (just about) unwinding the huge increases in spending that no Austrian endorsed.

So for the final summary, it goes like this: In response to the global financial crash, the Irish government engaged in a massive bailout of its banks–a bailout that Krugman patted himself on the back for opposing, because Krugman said it was too expensive for Irish taxpayers to bear. Now that the Irish government is (over the course of two agonizing years) returning its spending to levels prevailing before this massive bailout that he opposed, Krugman is saying that the reckless Irish budget cuts prove that once again, people should have listened to his policy advice.

APPENDIX in which I acknowledge that people have used Ireland as an American football

It is true that before the global crash, free-market types were pointing to Ireland as a success story. I have no problem with that, and I think they would have continued to showcase the virtues of fiscal austerity had they not done stupid things like guaranteeing all of their bankers and running up ginormous budget deficits.

It is also true that more recently, people have been pointing to Ireland as a counterexample to Krugman (citing him by name). I am not responsible for what those people are saying. Nobody should point to Ireland in the last few years as a great example of austerity, except in the relative sense that it’s been more austere than what Krugman would have wanted. Also, no Austrian thinks raising taxes in the middle of a global recession is a great way to help the economy or taxpayers. That’s a cure worse than the disease. So the last two years have hardly been an experiment in fiscal austerity, as far as Austrians are concerned.

Finally: This is NOT me doing a Krugman move a la the Obama stimulus. I am NOT saying, “The Irish situation would have worked out, if only they had cut even more.” (I happen to believe that, if you also say they didn’t raise tax rates, but that’s not my point in the present post.) No, my point here is that under any reasonable criterion, the Irish government has been running massive budget deficits for the last 3 years, during the time it was supposedly engaging in harsh contractionary fiscal policy.

In contrast, by any reasonable criterion, the Obama Administration ran a large budget deficit and hence expansionary fiscal policy in 2009. If Krugman wants to say it wasn’t big enough, OK fine. But it is entirely fair for me to say that a (watered down) version of Krugman’s solution was tried and failed in 2009 in the US, whereas nothing at all like my solution was tried in Ireland. How can say that? Because the Irish “austerity” involved bigger deficits than the Obama “expansion.”

(Incidentally, here is a great post by David R. Henderson demonstrating some more of Krugman’s truthiness when it comes to this stuff. When Krugman makes a claim that seems to be based on objective numbers, you have to realize that he is using his Keynesian models to interpret those numbers. He thinks he’s just following the facts, when those “facts” are dependent on his theory of the world.)

60 Responses to “The Rumors of Irish Austerity Are Greatly Exaggerated”

  1. Desolation Jones says:

    “great post by David R. Henderson ”

    Why is a fall in investor confidence the same as a rating downgrade? In both the case of the US and Canada, the downgrade didn’t seem to have any effect on interest rates.

    • AP Lerner says:

      David Henderson makes the same mistake as Mr. Murphy when talking about the Canadian miracle: data mining.

      what’s not mentioned is the price of lower budget deficits and to avoid a fictitious debt crisis was massively lower private sector savings, and a massively devalued currency that allowed Canada to massively boost exports.

      Funny how Murphy and Henderson can point to Canada as an example of how austerity works, but always fail to mention the other impacts.

      Mr. Murphy, are you saying the US should massively devalue the dollar like Canada did in the 90’s in an effort to grow the external balance? Or are you saying the US should push the private sector savings rate to zero and continue to lever their balance sheets like Canada did in 1992 just so the public so we can all have balanced budgets and useless AAA ratings?

  2. AP Lerner says:

    Sorry Mr. Murphy, you couldn’t be more wrong on this, and it appears to me you are data mining again. A discussion of the deficit w/ out even mentioning the private and external sector is an incomplete discussion, since they are all related by the laws of math. You also fail to mention to the tax increases that went with the 15% cut in spending over two years, which seemed convenient for your ‘relative austerity’ conclusion.

    If you’re goal w/ this post was to call Krugmans hypocrisy (or KKK as you like to say) regarding austerity, why not just post this instead posting some flawed analysis?


    • Major_Freedom says:

      “Failing” to mention worthless MMT tautologies isn’t at all a negative on Murphy’s post. In fact, it would constitute a positive.

      And wasn’t the tax increase something on the order of 2 billion Euros? Compare that to GDP of 170 billion Euros.

  3. Dan Hewitt says:

    In Krugman’s defense, he has addressed Canada in the 1990’s before (and even used it elsewhere as an example of the benefits of devaluation):

    Canada 1994-1998: Fiscal contraction took place as a strong recovery was already underway, as exports were booming, and as the Bank of Canada was cutting interest rates. As Stephen Gordon explains, all of this means that the experience offers few lessons for policy when the whole world is depressed and interest rates are already as low as they can go.
    So every one of these stories says that you can have fiscal contraction without depressing the economy IF the depressing effects are offset by huge moves into trade surplus and/or sharp declines in interest rates. Since the world as a whole can’t move into surplus, and since major economies already have very low interest rates, none of this is relevant to our current situation.


    • Bob Murphy says:

      But Dan, that’s not a defense at all. Krugman didn’t say (most recently), “There are no examples of austerity leading to investors regaining confidence that are applicable to our current situation.” No, he flat-out said no such examples existed.

      And as I pointed out to David Beckworth in the comments at Henderson’s post, it’s a bit silly to rule out the Canadian example by saying, “Oh, their central bank just cut interest rates.” I mean, how the heck can you have a successful example of austerity leading to regained investor confidence in your government’s bonds, without the interest rate on those bonds dropping?

      • Desolation Jones says:

        How is Canada an example of “regaining confidence” when inverters never lost confidence in the first place? Interest rates were falling before and after the downgrade (without austerity).

        • Desolation Jones says:

          when investors*

      • Dan Hewitt says:

        Krugman would just reply back that it was not the austerity that led to the restored confidence, but the other measures that restored confidence.

        Not that I agree with Krugman. I remember reading that Henderson piece on Canada some time ago, and it was excellent.

        I just don’t think you have Krugman cornered as well as you think you do.

        • Bob Murphy says:

          Dan Hewitt wrote:

          Krugman would just reply back that it was not the austerity that led to the restored confidence, but the other measures that restored confidence.

          Dan, look at what you just wrote. This is exactly what I claimed in my post, and yet you don’t think my point stands.

          Krugman is making it sound like he is appealing to empricism to back up his theory. But no he’s not. He is using his theory to rule out cases that, prima facie, support the austerians.

          If Krugman is allowed to say that a budget slashing, debt-to-GDP reducing, episode is disqualified if interest rates fall, then we can pretty much not even bother looking at the history books. No “fiscal austerity” can ever work, period.

  4. Yancey Ward says:

    Their’s is an argument you can never put a spike through- if things improve, they take credit, if things don’t, then you didn’t spend enough. I mostly ignore the nonsense they spout.

  5. MamMoTh says:

    The Irish government is still spending money and Krugman dares calling that austerity? Outrageous!

    • gienek says:

      Oh, yes, because deficits as big as 10% of GDP is merely “spending money”. You forgot your meds?

  6. Bob Roddis says:

    1. During “austerity”, if a nation dilutes its currency, isn’t that just a method to trick the economically illiterate government school-educated populace into accepting lower wages and prices without knowing what hit them? Of course, there would have been no need for “austerity” if the society hadn’t gone off the track using FRB notes or fiat funny money.

    2. Government “savings bonds” (beloved by MMTers) are not the same thing as “private savings”. Another rhetorical trick.

    3. Canada’s dollar exchange rate is now around 97.9328% of the US dollar. Personally, I miss those olde days of the 62 cent Canadian dollar.

    • MamMoTh says:

      Personally, I miss those olde days of the 62 cent Canadian dollar.

      When you get to the point you miss such things, it means you are so old, spiritually, that you’ve become a waste of space.

  7. Jonathan M.F. Catalan says:

    The issue is that spending has decreased between 2008 and currently (well, an increase in 2009, but decrease thereafter). Deficits in 2008 increased, but tax revenue decreased, meaning that looking at deficits is not a great indicator for spending stimulus. So, while this is not a great example of “austerity,” Krugman is not as loose with the facts (or their interpretation) as you are making it seem.

    In a different frame: a Keynesian would say that the recession represents a fall in aggregate demand, creating an income gap between 2007 GDP levels and current GDP levels. This income gap can be overcome in two ways: monetary and fiscal stimulus. If there is no monetary stimulus or if we are in a liquidity trap, we should focus on fiscal stimulus — i.e. government spending. Ireland has not really spent towards recovering that income gap, and in fact spending since 2007 has decreased by a small amount. So, Ireland’s example is closer to “austerity” than it is to anything else.

    This is not to say that I do not agree with your greater point, that as an example of “austerity” Ireland is a bad one (although, probably better than most others!). I’m just saying that on Krugman’s terms, this is not an “a ha!” moment for you.

    • Bob Murphy says:

      Jonathan wrote:

      The issue is that spending has decreased between 2008 and currently (well, an increase in 2009, but decrease thereafter).

      No, that’s not “the issue” Jonathan, or at least, it shouldn’t be.

      Look: Suppose a guy comes into the hospital with a sprained ankle. Krugman recommends we start giving him 10 grams of rat poison per day. I say no way, that’s nuts.

      So the doctors compromise and give the guy 5 grams per day. The guy gets even sicker than Krugman’s colleague Romer had predicted would be the case with no treatment. Krugman says “I told you so.”

      A year later the doctors start siding with me, but they’re still not sure. So they cut the guy’s rat poison treatment down to 4 grams per day. The guy still fails to get better.

      Would you say “the issue” here is that they cut back on the rat poison?

      To repeat my point from the blog post: I am NOT saying, “They are still spending more than I would have recommended, so it doesn’t count.” No, I’m saying they are still spending more, and running bigger deficits, than they were before they started implementing the Keynesian medicine. Before it can even count as austerity, at the very least we have to go to pre-“stimulus” levels.

      And anyway Jonathan, even on their own terms they are being inconsistent. They most certainly do refer to deficits as a gauge of stimulus, when it suits them. E.g. Romer says FDR tolerated bigger deficits when he first came in, and that’s why the economy experienced its most rapid growth in history.

      • Jonathan M.F. Catalan says:


        I think you missed my point.

        This is not that there is less spending than the “optimum” quantity of spending. This is that there has been no fiscal stimulus at all. In absolute terms, there is “negative” fiscal stimulus.

        The point of fiscal stimulus is to recover the income gap. The income gap can be roughly represented by GDP immediately prior to the recession and GDP at the trough of the recession — or the drop in aggregate demand. Thus, spending levels at 2007 for all intents and purposes represent “0” (a starting point), because that spending was already calculated into 2007’s GDP. So, maintaining that level of spending into 2008 does not do anything towards recovering that income gap. There was an increase in spending in 2008, so that does represent some fiscal stimulus. But, since then, spending has been less than in 2007 in absolute terms. Thus, fiscal stimulus — for all intents and purposes — has been negative, because not only has AD taken a hit in I and C, but also now in G.

        It may be the case that they are inconsistent with their use of deficits as a gauge, but that really has nothing to do with the underlying principles of the frameworking their working in. So, you can get them on that, but that doesn’t validate what you write here.

        • Bob Murphy says:

          Jonathan, I’m basically agreeing with you. I think the only problem here is that you are relying on numbers and not telling me what they are. I provided a list of government spending, and it showed that even in 2011, it hasn’t yet returned to 2007 levels. So that’s why I’m saying we haven’t even tried austerity yet; we haven’t even rolled back the “stimulus” that has so miserably failed thus far.

          Also, regarding whether deficits are the important criterion, here is Brad DeLong saying it quite explicitly:

          At this point, anything that boosts the government’s deficit over the next two years passes the benefit-cost test–anything at all. (See John Papola’s article.)

          • Jonathan M.F. Catalan says:

            Sorry, you’re right. I must have misread the figure for 2007 (as the one for 2008). For some reason I comparing 55 and 55, rather than 50 and 55/51.

            Wrt DeLong, well yes, that makes sense. You couldn’t say that between 2007 and 2008 an increase in deficit spending would recover the income gap. But, after 2008 raising the deficit would.

      • Jonathan M.F. Catalan says:

        Sorry, there was an increase in spending in both 2008 and 2009, but since then absolute spending has been less than 2007.

        • Bob Murphy says:

          Jonathan, are you saying the Wikipedia numbers are wrong? That’s fine if that’s what you’re saying, but where are you getting your numbers from? This is what Wikipedia, plus a news story for the 2011 number, are saying:


          So absolute spending is still higher in 2011 than it was in 2007. And it’s a lot higher if you do it as a share of the economy, since Irish GDP was a lot higher in 2007 than in subsequent years.

          That latter point is actually pretty significant. Let’s say a government holds spending constant at $1 trillion. Surely if GDP keeps shrinking until it’s only $1.1 trillion, at that point the fiscal stimulus is humongous–the government is spending 91% of the economy. So government spending as a share of the economy is really more relevant than absolute government spending.

          However, it’s not the sole criterion, because you’d also need to account for government taxation. And this is why the budget deficit is relevant. Keynesian theory would say that constant spending, coupled with a massive tax hike, would depress aggregate demand.

      • Jonathan M.F. Catalan says:

        Sorry for a third reply, but the biggest inconsistency — in my opinion — with regards to the Recession of 1937 is that spending in 1937 and 1938 was higher than in the years previous to 1936, so it doesn’t make sense that fiscal stimulus in 33, 34, and 35 did help recover the income gap, but not in 37 or 38. The recession wasn’t caused by a drop in AD from government spending, but a drop in AD from investment.

        Reductions in deficit is just a broad empirical fact that some Keynesians like to point to as a cause of the Recession of 1937, just like the Fed’s decision to increase reserve requirements, because they haven’t looked at any of the deeper details of the situation. So, I agree that there is inconsistency on the use of deficits as a gauge, but the situation in 1937 was markedly different from the current situation in Ireland.

  8. Tel says:

    I kind of hate it when people talk about government spending and government austerity as if somehow this automatically implied private spending and private austerity. As soon as someone starts talking about austerity in general you should haul them up and ask them exactly who is subject to austerity in their view.

    The Canadian situation illustrates this, because most Canadian families are on variable interest rate home loans (just like Australia) so when the Bank of Canada cuts interest rates, what that does is effectively rewrite the contracts of all the middle-classed middle-aged home owners paying back their mortgages. Lower interest rates mean they have more money for other things, higher interest rates leaves them with less money. In this way the entire banking industry can be pushed one way or the other. You may have mixed views about whether this is a good thing, but that’s how it works. What’s more these markets are greatly distorted by things like Superannuation funds and the regulations imposed that push them into more or less investment into various things (e.g. real estate). It’s not the textbook situation you are thinking of.

    Another example is the people who on the one hand push the idea of government spending as essential because to do anything else would impose the dreaded “austerity”, but at the same time are perfectly happy to see “green” initiatives driving electricity prices and heating fuel prices up to double; where families are living in the cold and dark. As if this imposition of a severe throttle on consumption somehow did not represent austerity! Are you kidding me? Total hypocrisy…

  9. Bala says:

    What’s wrong with falling GDP? Since GDP = C + I + G + X-M, any cut in G must lead to a fall in GDP. My question is, “So what?”. Why are we even bothering with this issue? Why is GDP even being considered as a legitimate measure of economic well-being, given the umpteen flaws in the concept itself?

    • Jonathan M.F. Catalan says:

      I’m not sure if it’s being used as a measure of well-being in this case. I think it’s used as a rough estimate of the number of resources being used towards productive (or consumption) activities. I.e. if at X there is full employment, then at X-Y there is Y less resources employed, so returning GDP to X will restore full employment.

      • Bala says:

        Even if it is used as a rough estimate of the number of resources used towards productive or consumption activities, I am unable to understand what is the meaning of “full employment”. Nor am I able to understand why a fall in the resources employed towards productive or consumption activities is necessarily undesirable and why increasing it is particularly desirable.

        Specifically talking of people, involuntary unemployment being impossible on the free market and any involuntary unemployment in the real world being (in the long run) due to intervention or restrictive action, why should we even bother about the level of employment at all? By extension, why should we then bother about GDP at all?

        More specifically, when we are talking of people, employment at any level of use of resources woud be (in the long run) “full employment”, wouldn’t it? So when we compare an output of X and another of X-Y, is it not inappropriate to say that if X generates “full employment”, X-Y would generate less than “full” employment simply because it would (logically) employ fewer resources? Wouldn’t each output level correspond to its own level of “full employment” in the free market in the long run? Wouldn’t we be guilty of conflating voluntary unemployment with involuntary unemployment?

        • Jonathan M.F. Catalan says:

          These are deeper theoretical issues which need to be fleshed out between Austrians and others. But, these are questions independent of “why use GDP at all?” Keynesians will answer your question and then will disagree with the deeper theoretical core that gives legitimacy to their economics.

          • Bala says:

            But then my original question was just “Why bother with GDP at all?” to which you replied saying that a lower level of GDP indicates a lower level of employment and that boosting GDP boosts the level of employment. I then replied questioning the very concept of full employment and its use to justify boosting GDP. You have not said I am wrong and hence I infer that you think I am right (unless you meant otherwise). That, to me, leaves the “GDP as an indicator of employment” argument insubstantial as support for the use of GDP.

            What then is the justification for the use of GDP?

          • Bala says:

            Just noticed this in your previous reply

            “I think it’s used as a rough estimate of the number of resources being used towards productive (or consumption) activities.”

            This is precisely why I replied questioning the concept of full employment. If every level of GDP corresponds to its own “full employment” except on the path to equilibrium, then how does lower resource use (without unemployment) translate into a desirability of higher GDP and hence provide support for boosting GDP? If the argument for using GDP hinges on its role as an indicator of employment, which in turn is misleading because lower GDP does not mean unemployment, then why use GDP at all?

    • sniffer says:

      I’m not an economist but when talking about Ireland shouldn’t we be talking about GNP as opposed to GDP given how open the economy is, the level of exports and mltinationals in Ireland. Wouldn’t GNP give a more accurate look at the numbers?

  10. JM says:

    As Krugman loves to say “fractions have denominators.” The ratio of budget deficit to GDP is a useless measure of austerity if the economy is contracting. Hoover’s budget deficit, for example, was the result of a rapidly contracting economy, not aggressive countercyclical spending.

    The measure of Irish fiscal austerity or profligacy is current G relative to pre-crisis G. What you forgot to include when you showed the raw total for G is debt service. Ireland’s debt ballooned by 100 billion Euros at least when it bailed out the banks. If you assume an average interest rate of 5% that adds 5 billion a year to G, but the money goes straight out of the country because the lenders are mostly foreigners. In effect, then, Ireland has cut at least 5 billion off pre-crisis G. The equivalent in the US would be cutting the federal budget by perhaps 350 billion dollars in a single year (normally savings like that are talked about on a ten-year time sclae). I don’t think there’s any reasonably case that that isn’t austerity.

    • Bob Murphy says:

      JM wrote:

      Hoover’s budget deficit, for example, was the result of a rapidly contracting economy, not aggressive countercyclical spending.

      Well it depends how you define “aggressive.” Hoover certainly raised spending over the course of his first term. There was a slight reduction in absolute terms in 1932.

      • JM says:

        His spending didn’t come close to closing the GPD gap.

        • Bob Roddis says:

          There is no “gap”.

          Be serious. Keynesianism is a hoax.

      • Lord Keynes says:

        I have already dealt with the risible, ignorant claim that Hoover’s spending increases constituted some kind of significant Keynesian stimulus:


        By this sort of logic, if an economy were to collapse by $500 billion, and the net fiscal policy effect was expanionary by $10 million, you’d be screaming “Keynesianism doesn’t work!!”

        Well, that wouldn’t be effective Keynesian countercyclical fiscal policy designed to reverse a recession: its a laughable, weak, inadequate policy response.

        • Richard Moss says:


          Can you please provide a direct quote from either Murphy’s or Karlsson’s articles that supports your claim that they argued;

          1) Hoover’s policy was a significant Keynesian stimulus.


          2) the failure of Hoover’s policies meant that “Keynesianism doesn’t work!!”

          • Lord Keynes says:

            “Today’s Keynesians love to point to history to “prove” the efficacy of their remedies. In particular, they adore Hoover’s budget cuts of 1932, and the Fed’s rate hikes of October 1931, as proof positive that ignorant conservatism caused the Great Depression. But prior to these turnarounds in policy, the federal government and central bank operated in a Keynesian fashion, though perhaps too timidly for Krugman’s liking. Krugman’s basic story doesn’t make sense. If the Keynesians were right, the economy should have been in a tepid recovery by mid-1931, and yet it was in fact still freefalling.”

            Robert P. Murphy, “Did Hoover Really Slash Spending?” Mises Daily, May 31, 2010.

            Read it for yourself.

            By that statement, Robert Murphy’s analysis precisely requires that – in his thinking – “Hoover’s policy was a significant Keynesian stimulus.”

            However, the idea that the tiny spending increases in 1930 and 1931 – wth their weak and inadequate fiscal expansion – could have stopped the depression is pure nonsense.

            This reveals ignorance even of basic Keynesian concepts, such as:

            (1) Potential GDP,
            (2) the Keynesian multiplier and
            (3) the appropriate level of discretionary spending increases that actually bring about Keynesian stimulus and positive GDP growth.

          • Lord Keynes says:

            As for Karlsson’s article:

            “It is true that the fact that Herbert Hoover pursued a radical deficit spending policy…”


            He didn’t pursue a “radical” deficit spending policy, if by that is meant an effective Keynesian countercyclical fiscal policy designed to reverse a recession.

            Hoover’s deficits as a % of GDP were mostly caused by (1) collapse of tax revenue and (2) collapse of GDP.

            In fact, in fiscal year 1930 (July 1, 1929–June 30, 1930) Hoover ran a federal surplus.

            So much for the “radical” deficit spending policy.

  11. Bob Roddis says:

    Such savagery. The Republic of Ireland has a population of 4,581,269 people. For 2008, Ireland had revenues of 43 billion and spent 55.7 billion Euros. For 2009, they had revenues of 35.3 billion and spent 60.0 billion. For 2010, they had revenues of 36.2 billion and spent 55.0. As the Imperious Lord Keynes has pronounced:

    Today, very few countries have had a depression in the proper sense of a contraction in real GDP/GNP of 10% or more. The only nations where this has happened are countries like Ireland, Greece, Latvia, Lithuania, and Estonia, in which savage austerity has been pursued and Keynesianism rejected.

    • Bala says:

      ROFLMFAO. Thanks.

    • Joseph Fetz says:


      Bob, let me guess. LK said that on Anderson’s blog?

      The twisting of reality seems to be a thing for LK. I especially love the usage of the word “savage” before “austerity”. It makes for great excitement and reading entertainment, but that is about all it amounts to.

      • Bob Roddis says:

        It’s from LK’s very own blog, where he adds in the comments:

        The ABCT is a nonsense theory that collapses owing to

        (1) the non-existence of a unique natural rate of interest;

        (2) the non-existence of real world equilibrium states and the alleged tendency to equilibrium required by Hayekian versions of ABCT;

        (3) the fact that credit flows went to consumer goods spending, not capital goods investment, as required by ABCT.


        LK shooting his Nerf bullets again.

        • Bala says:

          I think LK’s error is now apparent to me. He has completely misunderstood the Austrian concept of rate of interest. In particular, he has mauled Hayek’s statement out of shape and is using this misinterpretation to argue against ABCT.

          He has effectively demonstrated what I always said about him – that he understands no economics and can only be considered an economic chronicler.

        • Bala says:

          I am trying to get LK to commit to how he is interpreting Hayek’s use of the words “savings” and “capital” specifically in the context of the demand and supply of savings/capital. I am also trying to get him to commit to where, in his interpretation of Hayek, is Hayek saying interest rate is determined – the market for loanable funds or the production structure. The answer to that question should, AFAICT, tell us whether LK has a proper understanding of the Austrian concept of rate of interest.

          Specifically, I am trying to demonstrate that he is attacking a grandly established straw-man version of ABCT.

          It would help if someone (from the Austrian side) can tell me if I am making some fundamental mistakes myself.

          • MamMoTh says:

            Just one fundamental mistake. You take ABCT seriously. But it’s just a hoax.

            • Bala says:

              The one mistake I DON’T make these days is to take YOU seriously. I am STILL waiting for your refutation of ABCT while I am busy showing LK that he is deluding himself into believing that he has shown ABCT to be false.

              So where is it, genius?

            • Bala says:

              Plus it looks like you can’t read. I said “It would help if someone (from the Austrian side)…..”. What on earth makes you respond to that, other than the burning desire to make a fool of yourself of course?

              • MamMoTh says:

                Clearly, no other Austrian would point out to you that ABCT is a hoax.

                I thought even a moron could understand such a simple self-contained point of logic.

                Alas, not.

              • Bala says:

                Looks like your genius is beyond retards like me. So when’s that refutation coming? Or do you just specialise in making assertions that you can never back?

                Oh!! You are an MMTer. I should have known that that’s all you can ever do.

      • Lord Keynes says:

        Yeah, mate, you take a look at the social effects of the Irish 13.5% cut to government spending in a real world economy: unemployment soaring to 14%. I am sure things are all sunshine and ***** candy for the unemployed, aren’t they, buddy.

        As for Latvia, the horrors of austerity there are well known.



        Oh, but wait: for the Austrian cultist, with his fantasy ABCT, all that suffering is necessary to clear malinvestments.

        • Bob Roddis says:

          We are all well aware of the horrific and frightful impoverishment and dislocation wrought by Keynesian-induced malinvestments and how difficult and painful it is for people to regroup and press on in the aftermath. This is especially true when they cannot find straight answers to their situation and are instead fed a constant diet of Keynesian lies. We Austrians are just a small cry in the night trying to stop the Keynesians from causing the trouble in the first place. No malinvestments, no painful bust.

        • David says:

          “Yeah, mate, you take a look at the social effects of the Irish 13.5% cut to government spending in a real world economy”

          OH THE HUMANITY!

          Instead of $1.00 being spent, ONLY $0.865 is being spent!

          Unemployment benefits were still being doled out, but because there was a 13.5% cut to government spending: SAVAGE AUSTERITY! LOL

        • Bob Roddis says:

          Speaking of imposing savagery upon helpless people, does anyone think that these low low Euro interest rates are reflective of what true free market rates would be?


          How do these Keynesians expect people crushed by Keynesianism to recover without free market prices and interest rates? Heartless bastards.

  12. Lord Keynes says:

    “But it is entirely fair for me to say that a (watered down) version of Krugman’s solution was tried and failed in 2009 in the US, whereas nothing at all like my solution was tried in Ireland. How can say that? Because the Irish “austerity” involved bigger deficits than the Obama “expansion.””

    A statement that demonstrates ignorance of even basic Keynesian concepts.

    A deficit by itself tells you NOTHING about whether the net effect of fiscal policy is expansionary or contractionary.

    It is entirely possible to have a high deficit and highly contractionary fiscal policy, as Ireland demonstrates.

    Relevant factors:

    (1) fiscal impact of your local and (if they exist) state governments
    (2) whether discretionary increases in spending have occurred or whether deficits were just maintaining spending at current levesl as tax revenues collapse
    (3) whether taxes have been raised
    (4) whether the overall net effect is expanionary or contractionary

    • Bob Roddis says:

      I think it’s an abuse of the English language to call the Irish situation “austerity”. “Austerity” comes from the word “austere” which means:

      1. Severe or stern in disposition or appearance; somber and grave: the austere figure of a Puritan minister.

      2. Strict or severe in discipline; ascetic: a desert nomad’s austere life.

      3. Having no adornment or ornamentation; bare: an austere style.

      Keynesian policies have plunged these nation into depression and despair. While they may have not followed the Keynesian “cure of massively more unpayable debt and money dilution than they did engage in, calling these policies “austerity”, or “savage austerity” is outrageous.

      I still say that we merely need to get average people to understand that our unpayable debt and price inflation are purposeful government policies rammed down their throats by these lunkhead Keynesians. If we want to get technical, we can explain that Keynesianism as a form Münchausen syndrome by proxy where the “caregiver” induces illness its ward.

      Finally, always keep in mind that LK has no comprehension whatsoever of the concept of economic calculation. Everything he writes flows from that.

    • Bala says:

      Here’s more abuse of the English language….

      “Keynesian concepts”

  13. Bob Roddis says:

    Revenue in 1932 was $1.924 billion and expenditures were $4.659 billion. The deficit was 6.9% of GDP.

    Revenue in 1933 was $1.997 billion and expenditures were $4,598 billion. The deficit was 8.0% of GDP.



    The Keynesians will ALWAYS fuss that the interventions were inadequate. That’s not the point.

    The point is that the depression was not CAUSED by laissez faire or a failure of the free market and the failed cure did not consist of laissez faire or market failure either.

    Hoover was a massive interventionist and the depression was caused, among other things, by the US government trying to aid Britain’s attempt to reintroduce a gold exchange standard at the pre-WWI par value. That’s not market failure either.

    That’s not the narrative kids learn in government schools.

  14. Bob Roddis says:

    BTW, some guy named Robert P. Murphy wrote THE BOOK on Hoover and the depression.


    • Joseph Fetz says:

      Who the heck is that?

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