Quote: (10-07-2015 11:28 AM)The Beast1 Wrote:
Quote: (10-07-2015 10:57 AM)Ryre Wrote:
Austerity measures have been shown to be terrible for economic growth/recovery. The protests may not so much be people demanding free stuff as people who want the government to stop pursuing dumb, self-defeating economic policies that hold down growth and increase unemployment.
It's called the broken window fallacy.
A boy goes and breaks a window with a ball. The homeowner then has to go to a window shop where a gent makes a window. That window came from silica and came elsewhere further down the line employing a small army of people to make that final product.
Is the broken window bad for the economy? No! However, it robs the home owner of money to do something else instead of fixing that window. Argument also works well for prison spending and small towns which are entirely supported by the prison.
Prison spending is the same way and so is welfare. I would rather be spending my money on investments and making a small business which would create more wealth than taking my money and handing it directly to the poor robbing me of the opportunity to spend my money where I please.
So yes, it does cause a downturn but that is the withdrawal effect of removing malinvestment. Give it time and the market will self correct itself.
How is government spending and the national economy as a whole like and unlike one homeowner fixing a broken window? Explain your answer.
Intuitive metaphors like "we must tighten our belts" break down when applied to macroeconomics. If you run into hard times cutting spending and stashing money in your mattress makes sense. But if everyone cuts spending and stashes money in their mattresses the economy comes to a screeching halt.
Besides, who said anything about deliberately destroying things, e.g. breaking windows? If Britain is anything like the U.S. it has a lot of infrastructure needs. The government can spend, building roads and bridges that we need and also making up for the temporary fall in demand, 'priming the pump' and getting the economy moving again. At the end of your example all we have is the same window we started with. At the end of mine we have a bunch of roads and bridges we didn't have before.
The real-life record of austerity in times of recession is terrible. Britain, and Europe in general, have pursued much more austerity than the U.S. since 2008 and have had much slower economic growth.
The real world is complicated and counterintuitive, not always susceptible to explanation by simplified metaphor.