As always, the austerians’ goal is to spread the meme that the government of a sovereign state is “just like” a household. Rehn, however, has overplayed his hand and revealed that the meme is false. Note that Rehn never defines “solvent.” He does not do so because if he tried the meme’s falsity would be more obvious. “Solvent” is an accounting concept. It is not a concept used in auditing governments with sovereign currencies because it is inapplicable. Rehn implies that solvent means that the government must not run a deficit or there will be terrible consequences. There would be four insuperable problems if Rehn defined solvent in that manner. First, it was the crisis that caused the budget deficits rather than the deficits that caused the crisis. When there is a Great Depression workers lose jobs and income (reducing tax revenues) and more people receive unemployment aid and help from social programs (increasing expenses). Second, EU nations typically run budgetary deficits. Third the sky does not fall. The fourth flaw is more fundamental. There is nothing morally superior about a sovereign nation running a budget surplus. If it does so when demand is already inadequate demand will become even more inadequate and unemployment will rise unless the nation is a substantial net exporter. (We can’t all be net exporters.) A Great Depression like Spain’s produces a large budget deficit because of the budgetary effects of mass unemployment that I have just explained. What the national government should do, as the overwhelmingly majority of economists agree, is to fill the inadequate demand through increased spending on useful projects. Doing so is the best, and often the only means of quickly reducing unemployment and pulling the nation out of a Great Depression. Austerity will slow the pace and extent of the recovery. Vigorous monetary policy is often ineffective in spurring recovery from a severe downturn. Perpetual austerity in the form of a “balanced budget” cannot rationally be a “goal” of a nation state. The goal of a nation state must be the welfare of its people and a balanced budget would more often than not harm the people. neweconomicperspectives.org/2014/01/spain-rains-rehns-austerity-victory-parade-unemployment-rises-26.html#more-7486
Posted on: Sat, 25 Jan 2014 14:45:25 +0000
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