Written By: - Date published: 1:02 pm, May 15th, 2013 - 25 comments
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The Nats have made surplus by 2014-15 their one and only economic goal, because it is one that they can meet. They just keep the slashing social spending, and introducing stealth taxes until they make it. Claim success with no accounting of the damage caused on the way.
The whole approach rests on the fallacy of “expansionary austerity”. This approach is failing the world over. As has been widely covered in the media lately, the flimsy academic foundations that it rests on have recently been found to be utterly wrong. There are many good articles on the topic, this one by Bryan Gould is excellent:
Govt policies based on ‘sloppy research’
Key, English prefer to sacrifice the vulnerable than acknowledge damning case against austerity.
… Most people will know that the current government, from the moment it took office in 2008, has insisted that its top priority must be to cut spending and reduce the government deficit, thereby becoming a founder member of what is by now a dwindling group of countries that maintain that austerity is the correct response to recession.
This stance seems to run counter to the Keynesian lessons we thought had been learned from the Great Depression and to the experience today of those countries finding themselves mired in recession while pursuing austerity policies.
But, in the face of mounting evidence that they are on the wrong track, the proponents of austerity have been encouraged to stick to their guns by the work of two highly regarded Harvard economists.
Carmen Reinhart and Kenneth Rogoff published a paper called Growth in a Time of Debt in 2010 which purported to show that a country with international debts equal to 90 per cent or more of its national output would suddenly see a sharp fall in its growth rate.
For those countries with high levels of debt (and we are one of them), the lesson was clear. If they are to grow and escape recession, they must reduce debt. …
But the story has now taken an unexpected turn. A young graduate student at Massachusetts University Amherst, Thomas Herndon, was required to replicate Reinhart and Rogoff’s research. He was downcast to find that, try as he might, he could not. The young man finally discovered the truth; the research was vitiated by fundamental errors. With the help of two senior colleagues he published the results of his work and created a sensation which is still reverberating around the world.
The catalogue of mistakes is shocking. Reinhart and Rogoff had omitted through an oversight some of the key data; they had capriciously given excessive weighting to minor factors that had skewed the results; they had assembled statistics in bands so as to suggest there were tipping points (such as a 90 per cent debt to GDP ratio) that were in fact artificially constructed; and even if their conclusions had survived these errors, they had hardly considered the possibility that any correlation between high debt and growth rates might have shown that slow growth produced high debt rather than the other way around.
What this means is that policies that have kept millions out of work, condemned many to continuing poverty, destroyed a number of European economies and weighed down the whole global economy have been based on sloppy research and political prejudice.
But it seems unlikely the architects of austerity will be deterred. They will go on crucifying the poor and vulnerable, even in the face of practical and theoretical evidence that they are mistaken. …
Bryan Gould is a former Waikato University vice-chancellor and UK Labour Party MP.
Keep this in mind amidst the budget brouhaha tomorrow. The whole austerity driven focus of the budget and National’s economic policy is based on a premise which is in turn based on a spreadsheet error. Austerity and “surplus at all costs” has done this country much more harm than good, and merely delayed the recovery.