Austerity during a recession is about as logical as putting a malnourished patient on a starvation diet

Austerity during a recession is about as logical as putting a malnourished patient on a starvation diet.   Line up all the Nobel Prize winning economists, ask them if a recession demands austerity or stimulus, and… I’ll bet 80%+ will say stimulus.

The problem in a recession isn’t a lack of discipline, it’s a lack of demand.  Put simply, people are spending less money on… stuff.  So companies cut back production of stuff.  And workers who make the stuff start to lose their jobs.

It’s really not rocket science.  When you’re in the middle of a recession, the only way to get out of it is for demand to increase.  And if the private sector is not buying enough stuff, then it’s up to the government to increase purchases of stuff until demand is high enough that: 1) Companies produce more stuff;  2) Companies need more workers;  3) More workers get hired;  4) Those workers, now with more money, are confident enough to buy more… stuff!

Is fiscal discipline important in the long term?  Of course.  But in the middle of a recession, or even a slow-growth period (like now), austerity doesn’t help, it makes the problem worse.   If demand for stuff is already low, why the hell would cutting demand even further possibly be a good idea?

Resist stupid policies.  They may be seductive in their simplicity (hey, railing against “government waste” is always a crowd pleaser), but if they don’t work, they don’t make sense.

(P.S. – there are also lots of nice numbers and pretty charts to back this up.  As an an econ geek myself (warning, PDF), I’m happy to dig through that, but… really the “stuff” argument pretty much sums it all up, so I’m keeping my inner geek properly restrained, and holding off on more)

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About John Hlinko

John Hlinko is a frequent political pundit on TV, and the founder of Left Action, a network of over 1 million activists. He is also the author of, "Share, Retweet, Repeat: Get Your Message Read and Spread," ranked by Amazon.com as the # 1 "hot new release" in web marketing in early 2012. Follow him on Twitter and Facebook
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44 Responses to Austerity during a recession is about as logical as putting a malnourished patient on a starvation diet

  1. Paul Haider says:

    It is possible, but certainly not probable, that Americans and our unpopular Congress can learn from the mistakes of the European countries that tried (and failed!) in their austerity measures. While we’re at it, Aamericans can also learn a lot from the European countries that are opposed to gun ownership, the use of violence toward either humans or animals, and taking the Libel, uh, Bible so literally. Eventually, someone in power will realize that the two best ways to generate revenues are to increase the taxes on anyone who earns more than $100,000 per year, and then we should end the tax-exempt status of organized religion in the United States.
    Paul Haider, Chicago

    • Shirley says:

      I couldn’t agree more. I disagree with the amount, there are places where you couldn’t make it on 100k. However, those religions with demands that our government rule according to their doctrine should lose their tax exempt status immediately. Taxing the RCC and the So Baptist churches could substantially reduce our deficit.

      • gene says:

        Can’t make it on 100k??? Really??? I live on $6000 a year and life is great.

      • Paulhaider74 says:

        Shirley, the salary amount used to be $250,00 or more during the Clinton years, and the taxes were raised on those rich people in order for the economy to flourish from 1993 through 2000. However, the Bush tax cuts for the wealthy were implemented eleven years ago during this current week of June. Am I the only one who noticed how the economy got progressively worse during the past 11 years as a result? If we are to generate revenues again in order to save our economy, we would have to establish the “Six-Figure Tax” to compensate for all of the money that we have lost because of Gomer “Born-Again” Bush and Dickhead Cheney in the White House. By revoking the tax-exempt status of organized religion, beginning with the Big 3 (Catholicism, Mormonism, and Protestantism), it would be our only chance to ever repay the three trillion dollars that we owe to the non-Christian and COMMUNIST nation of China. What would St. Reagan think about that?
        Paul Haider, Chicago

      • howard dahlberg says:

        Is there any reason you didn’t mention islam among the “…religions with demands that our government rule according to their doctrine”?

    • canucanoe2 says:

      “increase the taxes on anyone who earns more than $100,000 per year, and then we should end the tax-exempt status of organized religion in the United States.”
      I agree with the taxes on religion, but a couple living in NJ making $100,000 is not living high on the hog. Make it $200,000 and I’ll agree.

    • Paulhaider74 says:

      It is clear now more than ever that President Obama should have selected either Elizabeth Warren or Paul Krugman as the Secretary of the Treasury instead of Tim “No Eyebrows” Geithner. Here is the first and most obvious indication that Geithner was dangerously unqualified for his current job: Geithner was employed by the Bush administration. The consersative tool that panders to Wall Street (Mittwit, we’re looking at you!) should never be in a position to determine what is best for the rest of the country. Where it is either austerity measures or tax breaks for the wealthiest Americans, the middle class will always get screwed as long as Repugnantcans are rigging the game.
      Dr. Paul Haider, Chicago

  2. Plus business gets a bonus when the government creates jobs through spending on infrastructure and R&D.

  3. David Kaminester says:

    This makes perfect sense, but will never happen, so long as we have a political party hellbent on blocking any legislative effort to stimulate the economy and create demand (and jobs), and is cynically trying to crash the economy for political gain.

  4. Pingback: A Lesson in Economics for the Tea Party Fools « Monsters and Fools

  5. Sarah in Louisiana says:

    And how exactly does the government pays for “stuff”? It either takes, prints or borrows… and printing and borrowing are just delayed taking. Government is naught but a money-siphoning entity. It can add nothing to the process; therefore, the best solution is for government to get the heck out of the way of the market.

    • Faye says:

      Sorry, but the market hasn’t done anything good for me lately.

    • John Hlinko says:

      Sure, the government borrows more during the slow times so it can spend to rev up the economy, which in turn increases tax receipts, which allows the government to pay it back. Our problem is that we’ve rarely “paid it back” during the boom years (with the exception of Clinton), it is not that we haven’t cut further during recessions.

      It’s not terribly different from the borrowing that companies do all the time. As long as you pay it back when you have it, there’s nothing wrong with borrowing when you need it.

    • Shirley says:

      Sorry but the constitution clearly states that the government has a right to levy taxes for money to run the country on. You are foolish to think that government is the entity causing the problem.

    • Jim says:

      Sorry, but logic like that means that no one pays for anything because essentially we all get our money from someone else and the fact that you use the verb take, as if we don’t have any voice in tax policy is telling. And please remember that your view of the market, as one with no or little government intervention, is the one that historically resulted in giant monopolies and giant economic swings, neither of which is good for anyone.

    • Mike says:

      Amen Sarah. I feel sorry for those who are out-of-work and/or struggling, but to stimulate the economy by printing yet more money and creating more debt, so governments can spend more money, will only hurt the US in the long-run. Make taxation fair, drastically reduce the size of government, and stay out of the way of the economy, except for controlling the money producers and gamblers (Wall Street), and we can all come out of this mess in one piece.

    • Gay says:

      finally…a comment that makes sense. Businesses are not hiring because of Obamacare. Have you people-not Sarah-heard that it will add between $1.67 and $1.79 per hour per person to the cost of running a business? Where I work there are 20 full time employees and a handful of part-timers…let’s take $1.67 and multiply that times the number of employees which is 20 and we get $33.40 per hour additional cost for the business owners. Let’s see what we get when we multiply that times 40 hours- a full time work week. $1336 per week extra per week for Obamacare. Annually that would cost them right at $70,000. I don’t know how much everyone else makes, but I don’t make that much a week. Let’s just say that is 4 slightly above minimum wage workers. If the company has to spend 4 employees salaries on the taxes for Obamacare how do you think they are going to make up the difference??? Possibly by laying off those 4 employees??? My employer’s are not rich by any means. Believe me, I know them personally and have seen where they live. They drive regular vehicles just like the rest of us. Get government out of it!!!!! All the regulations are killing us. We are a civilized people and we don’t need to be told how to do everything. For God’s sake, let’s not make all these entitlements permanent. Look at all of the FAT people on foodstamps. Lazy people on welfare. Free cell phones…what????? I recently learned that to adopt a section of road to pick up litter on you have to pay to do that. Let’s make welfare mothers and food stamp fathers get out there and pick it up in exchange for the food. There is plenty these people could do if they weren’t so lazy and spoon fed by the government. Making them do something for the food and clothing and housing and free cell phones might motivate them to go out and get a real job.

  6. moxyy says:

    why not spend?
    it’s not like we are going to pay it back anyway ..
    of course that our gluttony may cause our grandchildren some discomfort is irrelevant, since we’ll be dead

  7. Or people learn to live with less STUFF, companies learn to make less STUFF, workers that were making STUFF begin to work on more important things than STUFF, or in the end we’ll be left starving, thirsty, and diseased staring at a pile of STUFF that we can’t eat, drink, nor improve our health with

    • Faye says:

      I like this. i could do with less stuff and a more nourishing life. Definitely. But in the meantime, how do we create jobs?

      • howard says:

        Here’s an idea: be an entrepreneur and be responsible for your own well being and hire your friends to help you grow your business or, find an employer who has the wealth to hire you and offer you a way to make a living. However, it would be best to avoid despising an employer who has enough wealth to hire you. He really, won’t like you if he senses your disdain.

    • Jacquie Wood says:

      Start new ideas. How can people living in Apartments find ways to grow their own fresh vegetables in containers and closets? How can Urban areas use empty lots and Park spaces for growing food and flowers? If we were to focus our energy on the health and well being of all living things on this planet we would change the economy and our relationship with money will change as well. We have large countries like Brazil who have no military, and there is a city in Brazil with a population of over 2 million, where there is literally no hunger, and no one goes without food. The examples are rampant if we will look beyond our own borders and start to recognize the valuable contributions of the people from other places on our planet.

      • mwh2os says:

        I like your Idea. We need to start looking around the world to find the best examples that work for the environment and the 99% not just the 1%. San Francisco, CA, out of necessity learn how to recycle and reduce their trash down to about nothing, this would also create much needed jobs. San Antonio, TX, now powers much of their city by recapturing methane gas from their sewers. Our education system appears to be little more than a place for children to go while we work. Unless you can afford private school that actually teaches people to think, instead of just do as your told. We don’t stand much of a chance, as undereducated serfs. There are some really good things and ideas in the world, but unless they benefit only the top 1% , they will not be allowed to happen.

  8. David Kaminester says:

    The biggest spending and resultant largest deficits have been done by Republican administrations. The rate of government spending, since Reagan, has actually been lowest during the Obama administration. But who needs facts when you have Fox News.

    • Bill says:

      Actually, spending has been at its highest ever under this presidency. You are probably referring to the NY Times article that “proved” that the rate of increased spending has been lowest under Obama. That article has been proven to have a multitude of errors and assumptions. Even if it was entirely true, it just shows that his spending hasn’t increased by as much as previous administrations had over their predecessor. This means that he still has the highest amount spent.

      • Deb Shepherd says:

        Bill, perhaps it is time for a reset, what you just said makes no sense, article true or false, Obama is still the big spender..I read it too and the only spin I’ve seen on line is from Fox, all economists seem to agree with it..Paul from Chi ideas seen doable..course getting any religious tax bill in front of the these bible pounders should be something to see..get the popcorn.

  9. James Wood says:

    Sarah, we are in this mess because government got the heck out of the way of the market. There WERE restrictions to prevent Wall Street from doing the crap they did with the mortgage market, but Bush 43 removed them… and here we are.

    • Faye says:

      Exactly. When the restrictions are removed, companies do terrible things. In the name of the stockholders, but certainly keeping a lot of the booty for themselves.

    • Sarah in Louisiana says:

      I’m not saying Wall Street wasn’t responsible, but they weren’t operating under a truly “free market.” They were cheating through a bought system where they lobbied government and government intervened by manipulating interest rates (plus some other bogus housing initiatives).

      That may be over simplification, but the bottom line is that when any entity or individual has power to wield, they become prey to manipulation by those seeking benefit from that power.

      The answer is not more government, it’s limited government.

    • canucanoe2 says:

      I’m a liberal, but elieve it or not, a republican congress and Clinton were responsible for ending the protections afforded by the Glass-Steagal Act.

      • co11in5 says:

        Yes, but that was a congress that was willing to cross the party lines for the benefit of the country.

  10. David Kaminester says:

    Except, Matthew, when that STUFF is food, clothing, medication, and health insurance which folks can no longer afford because companies are sitting on trillions of dollars and laying off their workforce. And Wall Street is lifting people’s pensions they have been paying for for decades to pay for golden parachutes for the thieving robber barons who crashed the economy in the first place. Because in America, the Republicans want STUFF like medications and health insurance bought and sold on the free market (instead of provided publically, as a right, like every other 1st world nation and a lot of 3rd world nations, for that matter) just like the unnecessary STUFF about which you are so upset.

    • Faye says:

      I think “free market” is an oxymoron. It’s a shame, but they will tke whatever they can get and there is no compassion, no deep thought, no room for real people in this system that we have now – – – only thieves on a massive scale. Corporations are NOT people, otherwise maybe they would have to obey laws.

  11. David Kaminester says:

    If you are not a millionaire or billionaire, the Republican Party could not care less about you, except that you vote for them. Which they pull off by convincing you that your economic interests and those of robber barons (think of Mitt Romney, or Monty Burns) are the same. Oh, and that you should hate women, minorities, and the LGBT population, because other Americans are your real enemies.

  12. Tamara Johnson says:

    The government does not create jobs, the rich do not create jobs, corporations do not creat jobs. CONSUMERS do. Too much media overload scares people ( mostly unnecessarily). I believe the media rhetoric deepened this recession beyond what it would have been without the overload. Do I think American consumer spending (and not saving ) was out of control? YES, but I think the tide is turning to the saving and financial education side and that is good. Save yes but also go ahead and spend on those things you need ( and want). Just leave the credit cards at home, or be educated on their responsible use.

  13. Dave Corbin says:

    The theoretical free market does not and never will exist so why even talk about it? We do need stimulus i.e. demand for goods and services but we should try to ensure that most of the demand is for products made in the US. That’s why infrastructure improvement makes a lot of sense, it creates construction jobs which cannot be outsourced. There should also be requirements for contractors involved to ensure that they aren’t using illegal aliens for their labor.

  14. Jeff says:

    I kind of think that Austerity tactics during a down economy or recession is like giving an Anorexic Ipacac syrup, starvation sets in.

  15. howard says:

    The austerity/recession, malnourished/starvation analogy is cute but, not very valid. I’m sure you could think up something more persuasive than that.

    • canucanoe2 says:

      You say the analogy is invalid, yet you fail to explain why it isn’t valid, which makes your comment invalid.

  16. D. K. says:

    FROM a Canadian…… Pres. Obama will serve a 2nd. Term. [ Unless ALL Americans are Clinically Insane ]. ….. Nobody is going to Elect someone named,… ‘Mitt’.
    That’s a Fact I WILL Bet on ! … However, the $$ Republicans are Wasting on this Election May Help the,.. ‘Economy’ ? …( just a thot ).
    U.S. Politics is so screwed up, and the, ‘Policies’ are unreal, … but,.. ObamaCare is a Good Move. AND,…. Please STOP the, Golden Parachutes, and TAX the Balls off of The,.. 5 % !! Fund N.A.S.A….. for Gods Sake !! … IT Saves Your Economy !! .. As well, the, Bible Clearly States to Not Spend $$$ on a, Religion [which are ALL Cults]. WHY, because,.. ‘Christianity’ is all about,..’GIVING and HELPING’ and NOT spending on Their Religion, or to, Power Brokers !!
    ‘Christianity’,.. is bigger and Better than ALL, ‘Religions’……. Curiously,…why do You go after,.. The Middle East about,.. OIL ?… You get the Biggest Amount from,…Canada !! …. Get OUT of Anything to Do With,.. CHINA !! Make peace with CUBA ! … Stop the,.. ‘Insanity Parts’,.. on your Drug War…. Real Addicting Drugs,…’Git Them Stopped’,…Hardcore !!…. and Legalize Hemp ! …Take,.. ‘Pot’,.. OFF The,… Bad Drug List !! …[ and Free Marc Emery ]…..
    I Love,… ‘Jacquie Woods’ Comment !! … GREAT !! … That’s enuf 4 now…….

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