At the risk of another hijack, I’m curious* if Euros feel overwhelmingly compelled to exercise their Amerophobia at every opportunity?
*well, not very…
The UK and France. Our country/nation/government weirdness is understandably confusing for those not brought up within it, so it’s generally not a big deal when people mix up England/Britain/the UK and so on, but your cite does use UK. The words are not interchangeable.
Of course, this error is understandable, given that you’ve also missed that your cite points out other European countries which have made (what the writer considers to be) minor, recent spending cuts, as well as another set of countries which have made more drastic spending cuts.
So yes, I suppose you’re correct when you say that there’s no evidence that Europe is practicing austerity, assuming we’re not scrolling down a bit on the same page to see it.
Hmmm… but that wasn’t your main argument. What you said in your liberal-bashing screed made reference to…
“…liberal arguments about the low economic cost of regulations, and ignored conservative arguments that regulations cause market imbalances and prevent the economy from re-structuring after a crash. What they actually discovered is that countries that have higher levels of labor and market regulation crashed harder and took longer to recover than countries with fewer regulations.”
And I’m simply pointing out that this is obviously not true, since Canada has a lot more banking regulations and as a consequence has one of the strongest and most stable banking systems in the world and weathered the last recession a good deal better than the US, along with a housing market that was and remains consistently robust. And that was in spite of less stimulus spending, certainly not because of it. I’m not an economist by any means but it’s hard for me to see how a massive injection of government money can fail to be a positive influence on an ailing economy, as per the venerable John Maynard Keynes. The criticisms I’ve heard about the US stimulus is that it just wasn’t enough given the magnitude of the crash.
That’s only partly true and may not even be a factor at all in the US housing crash, compared to reckless and predatory lending practices by freewheeling profiteers so utterly unethical that in other jurisdictions they would have landed said profiteers lengthy jail terms. But of course, for that to happen you need financial regulation, the bane of conservatives everywhere.
For years the assumption has been that Canada’s economy is very tightly regulated and socialist-leaning compared to America’s. That may have been true in previous generations, but not now. The Index of Economic Freedom ranks Canada as the 6th most free country in the world, while the USA ranks 12th. In particular categories that would be relevant to the financial situation, Canada generally comes out ahead:
*************************** Canada USA
Business Freedom********** 89.3 89.2
Financial Freedom********* 76.3 75.4
Investment Freedom******* 80.0 70.0
Monetary Freedom********* 80.0 70.0
There are other categories, such as Labor Freedom, where the USA comes out ahead of Canada, but overall there’s no reason to view Canada as being more regulated. Over the past generation, Canada has slashed spending, sold off government-owned operations to private industry, trimmed regulation, and generally moved towards free markets, which can probably explain the country’s great economic performance.
I tend to be skeptical that any metric that the Heritage Foundation or Cato uses to push their agendas is necessarily valid, especially when it is clearly at odds with some pretty obvious straightforward facts, such as the fact that the Canadian banking industry is indisputably tightly regulated, and so is mortgage lending.
It seems that many agree with my skepticism:
Furthermore, the criteria for this index seem to be so fuzzy that the US has been in radically different positions in the ranking from year to year, and in fact supposedly started falling behind only around 2011. In most of the years I listed, with the start of the recession in 2008 being the mid-point, the US was in fact ahead of Canada on that ranking. Didn’t really help, did it?
As far as banking regulation is concerned…
You are focusing on one aspect of the Canadian system that is different than America’s. And again, it’s not so simple to say that it’s ‘more regulated’. Canada’s entire banking culture is different than the U.S.'s. It’s not so much that it’s more regulated - in some ways it’s less regulated, in other ways more. But it’s very different. We have a few very large banks, the U.S. has many smaller ones. Bankers here are generally a more conservative lot by temperament, and the government/banking relationship is very different.
The uncomfortable fact for interventionists is that Canada has moved in the opposite direction from what they claim the ‘right’ policies are, and has been doing so for 20 years. We cut the size of our government dramatically. We lowered taxes dramatically, including corporate taxes, capital gains and dividend taxes. We flattened our tax system by lowering top income tax rates and making up the different with value-added taxes.
If you look at what Canada was like around 1990, you’ll see something very similar to where the U.S. is now. Our debt was 70% of GDP. We were running huge deficits. We had very generous social programs. Our tax system was more progressive. The government owned many ‘crown’ corporations, and consumed almost 50% of GDP. It constantly meddled in the economy through directed ‘incentives’ and punishments of industries it did/didn’t like. The result? High structural unemployment, low growth, capital flight, a ‘brain drain’ to the U.S., etc.
We began a long period of ‘austerity’, and emerged out the other side much healthier.
And now, we are responding to low growth by cutting government spending and taxes even more, and rather than run big deficits to ‘stimulate’ the economy, we’re going to run surpluses and use the money to pay down our debt.
These are all the kinds of steps that someone like Paul Krugman or Jeffrey Sachs would claim will drive Canada’s economy into the ground. And yet, here we are outperforming much of the world.
In the meantime, Japan did everything a good Keynesian would want. Their fiscal ‘stimulus’ dwarfed everyone else’s (over 2 trillion dollars), they have an extremely expansionary monetary policy, etc. The result? Massive debt, a moribund economy, and a yen that is collapsing.
It’s almost as if it turns out that you can’t tax, borrow and spend your way to prosperity - a lesson that people seem to need to have to re-learn every generation or so.
Why are you talking about tax levels and stimulus spending? Is that part of the OECD’s admission of failure?
And focusing on banking system (and it’s regulation) in this thread is probably a good idea, I would think. It was a Banking led collapse, was it not?
Yes, and the suggestion that the collapse was caused by too much regulation is laughable.
Honestly no offense intended with this, but please drop the Canada has a more regulated banking market bs. That’s just plane silly. The regulations that Canada has are essentially the opposite of what Democrats want.
Do you want to get rid of too big to fail in the U.S.? Well, Canada only has large banks. For all real purposes, Canada has five giant banks. The U.S. certainly has large banks but then we have thousands of smaller banks as well. Canada has some smaller banks, but they are basically immaterial to the Canadian banking system.
Do you consider the repeal of Glass Steagall to be major deregulation that contributed to the economic collapse? Well, the big Canadian banks are full service commercial banking, investment banking, insurance companies. There is absolutely no thought given toward separating those functions.
Canada’s banking system is an oligopoly that has less political interference pushing special interests and a more simple regulatory framework. The U.S. has a ridiculous system of overlapping regulators that are in conflict with each other and provide extraordinarily unclear rules.
If the U.S. wants a safer banking system there is one very simple way of achieving this: require them to hold more capital.
Equally laughable is the belief that it was caused by de-regulation.
A couple of points that the OP has somehow missed:
Here is what the report says about openness and the forecast errors:
This suggests that financial globalization in particular can be dangerous and international capital flows should be more carefully regulated.
The report also says:
This suggests that tighter capital adequacy regulation is needed to prevent future crises.
Actually, I mentioned the first item in the OP. The last one speaks to the rate of expansion of financial leverage and didn’t look particular applicable to regulation/lack of regulation. But you could be right about that.
The report specifically calls out market regulations and labor regulations as impediments to growth they didn’t account for. This shouldn’t have been surprising - regulations tend to make it harder for an economy to restructure when it needs to. Approvals take longer. Labor mobility decreases. The cost of change increases. If your minimum wage is too high for the new productivity levels, you wind up putting people out of work instead of smoothly lowering their salaries. That takes productive capacity out of the work force, and increases the cost of social spending, which puts a greater tax or debt burden on everyone.
Uh, um, no.
Look at this graph, the second on the page that I linked to. It shows spending trends for the so-called “PIIGS”: Portugal, Italy, Ireland, Greece, and Spain, the countries that went through a dramatic crisis. From 2002 to 2008, spending in all five of those countries rocketed upwards. So if government spending leads to growth, as the infallible writings of Saint Paul of Krugman say, those five countries should have been primed for a burst of growth starting in 2008. Instead they hit a devastating downward spiral.
So what happened in the crisis years, 2008-11? Government spending went … up, everywhere except Greece. In Greece it went down a very small amount. Overall spending in Greece is much higher now than 10 years ago. Likewise for Italy, Portugal, Spain, Ireland, and most other European countries. Check and you’ll find government spending at or close to all-time highs (for peacetime) in most of Europe. So I’m not seeing a whole lot of “austerity”.
You quoted the first sentence and left out the rest which made it clear that the OECD was talking about international capital flows and not as you seem to think fiscal policy in an open economy. As for the second point since the quote specifically mentions low regulatory capital ratios, it pretty clearly has to do with regulation.
So if they were wrong then, what makes them right now?
Oh right, cause liberals
Firstly, I made no argument as to the rightness or wrongness of Paul Krugman. So putting this argument here, written in the way you have, makes it seem as though you’re cleverly rebutting the claims that I haven’t made.
By “check”, you mean “here’s my cites showing this” right?
Even then, i’m afraid I can’t agree with this as a definition of austerity. Deep, sudden spending cuts strike me as moving into austerity mode; I don’t think they have to be large as compared to… apparently all of European history, you’re comparing them to here, just large as compared to what they recently were. And when that comes to nations, even such a thing as a cut in spending growth can indicate austerity, if it were still a deep reduction in what it would have been otherwise - which your cite certainly suggests. But let me ask; what level of spending cuts would you expect from austerity?
War is peace.
Slavery is freedom.
Austerity is when government spending increases.
I entered this thread by responding to this claim by tomndebb:
It seems to me that it is also true that the countries with higher levels of labor and market regulation (notably the EU), tended to follow the “conservative” path of austerity while the countries with less regulation of labor invested more heavily in Keynesian government spending.
If we want to blame Europe’s recent woes on “austerity”, we first need a clear definition of austerity. Then we could see which countries actually practiced austerity.
At a notably lower rate than it would have? Sure, why not? This isn’t an argument; this is “Let me list some things and then not actually talk about the points on which I believe the similarity lies.” Moreover it’s an attempt at an argument for definition by definition, which really doesn’t work.
Sure. And I disagreed with your definition. And you’re pointing out that… you’ve set forth a definition. Ok.