The Myths of Austerity

If you spend some time on blogs and message boards you see a lot of different reactions to the current discussion in Washington about our debt and deficits.  Inevitably, someone talks about the debt crisis in Europe and the PIIGS countries in particular.  In these discussions, I have seen a few alarming flaws in logic regarding the word austerity that is typical of the reason why we have a difficult time discussing this topic in our country.

Pundits, politicians, experts and everyday people argue whether or not we have a debt problem in this country, and if we do, what is the best way to address it.  Is it increased taxes, decreased spending, or a combination of the two?  This article is not to address those issues.  But what it is important to address are fundamental logic flaws about the concept of austerity in Europe that many people in this country have.  To do so, I will focus on Greece in particular as an example of the worst of the problem.

Greece is in an economic crisis because their debt to GDP ratio became so high that their ability to ever pay back their debt was put in question.  As a result, their bond rates increased making it more difficult for Greece to pay back debt.  In addition, the global market crash in the late 2000s affected Greece’s GDP, making it even more difficult to get their debt under control.  Because the country is part of the EU they do not have the same flexibility with their money that the U.S. does.  But, the fundamental problem for Greece was that their debt to GDP ratio simply became too high.

Now this is where austerity comes in.  Austerity was essentially forced on Greece as a condition to secure loans.  In other words, other countries said we do not want to give you more money until you demonstrate that you are going to take measures to get your debt under control.  So austerity was a result of out of control debt, not the cause of it.  I can’t count how many times recently I have heard people try to state that austerity was the cause of Greece’s problems.  Now, the other problem I see in this country is that many people are trying to equate Congressman Ryan’s recent budget proposal with austerity.  There are several logic flaws with this also.  First, if you try to look at what any U.S. budget proposal is, it is not really spending cuts, it is mainly slowing the rate of spending increases.  In other words, if I gain 3 pounds a year and one year I only gain 2 pounds, I didn’t cut any weight.  I just got heavier a little more slowly that year.  Second, the austerity measures in Greece are a combination of spending cuts, tax increases and other measures such as the privatization of some industries.  So to only equate austerity with spending cuts is not logically valid. In fact, austerity in Europe more closely resembles a balanced approach to deficit reduction, just on steroids.  There is a good link below that covers the austerity measures in more detail.

So what does all this mean?  When discussing our options for the deficit and debt, it is important to not only look to what other countries are doing but to fully understand what they are doing in context.  Austerity did not cause Greece’s debt crisis, over-spending on social programs, and a decrease in revenue due to a lowered GDP and problems with their tax code caused their debt crisis.  Their ability to handle debt differs from the U.S. because they are a member of the Eurozone and not in control of their own currency.  However, what made their debt a crisis was that they let it reach a level that made creditors doubt the country’s ability to pay it back.  Austerity was an attempt to fix the debt crisis and was required as a condition to get access to more money.  Finally, austerity for Greece involves large cuts in spending and large increases in taxes, large compared to what the U.S. is discussing.

 

http://www.bbc.co.uk/news/business-13940431

A Different View on Income Inequality, The Times they are a Changing

If you spend some time on discussion boards about politics, you are bound to find some people who rant about rising income inequality and how greedy people are trying to take over the world and make everyone else poorer.  The only thing the people making these posts can’t agree on is whether all of the greedy people trying to take over the world are led by George Soros or the Koch brothers.

Let me offer a different view on income inequality.  It is hard to argue with the facts that the wealthiest in the world have increased the gap between their wealth and that of the poorest  over the years.  But instead of some massive conspiracy, let’s consider a more benign, but real reason why this is happening.  I will readily admit that the concepts I am going to talk about appear in Malcolm Gladwell’s book Outliers.

There are some jobs out there that are constrained by physical limitations.  For example, if you are a plumber, even a really good plumber, you can only fix so many toilets in one day. You have to physically get to all of the locations and do manual work that can only be done so quickly.  So although a plumber may make a decent wage per hour or per job, there is an upper limit on his or her income that only changes a little over the years to adjust for inflation and for some minor fluctuations in supply and demand.

Contrast the plumber with that evil person out to take over the world, Taylor Swift.  If Taylor Swift was alive 200 years ago she could have used her voice and talents to sing songs for local people and may have been able to scrape together a living doing so.  If she had been in business 50 years ago, she could have used her talents to record records that would have likely sold to people only in the U.S. with a population that is smaller than it is now.  But right now, Taylor Swift can record a song, using a process of recording that takes roughly the same work and effort as it did 50 years ago, but that song can be downloaded by billions of people around the world.  Her income potential has increased by a rate almost beyond comprehension simply by being alive in the digital, global age instead of 200 years ago.  Compare that with the plumber or other manual worker who is still just as limited by physical constraints as they were years ago.

You can also apply this concept to corporations.  Before the industrial age, companies were limited in how big they could become.  Products were made by hand and had to be moved over land or by sea, but there were only so many markets with the money to purchase goods.  Now, production capacity is so much greater, transportation is better, there are more people in the world and more of them have a working wage to buy products.  And that does not even include products and services that are not physical any more and can be digitized and spread rapidly throughout the world.  

The world is constantly changing.  Concepts such as the internet, globalization, and digitization all change the way we work and conduct business.  That is a fact of life.  Sometimes people try to see vast conspiracies when the explanation is simpler – the times they are a changing.

 

 

 

A View on how the Largest Economy in Europe views Debt

Germany agrees to ‘historic’ balanced budget – The Local.

Japan urged not to escalate tensions over Diaoyu |Latest News |chinadaily.com.cn

Japan urged not to escalate tensions over Diaoyu |Latest News |chinadaily.com.cn.

 

This is an example of why our debt is important.

Words Have Meaning, Part 2

In Part 1 of this post, we discussed how the use of words to describe a topic or problem can be misleading or confusing and cause people to ignore the larger issue at hand.  In this part of the post we will look at two current topics of concern and see how the words used to describe them are inadequate.  In the interest of fairness we will discuss a topic from both sides of the political spectrum to show that neither side is immune to the problem.

Many watched and followed on social media as Senator Rand Paul filibustered the nomination for CIA director and demanded answers for the administration’s policy on drone strikes.  Newspapers have recently begun covering drones and their capacity to strike at and spy on citizens.  Just google the term ‘drone strikes’ and you will be amazed at the number of results.  So let’s look at the term.

First, the sophisticated aircraft we are talking about are Unmanned Aerial Vehicles (UAV) or Unmanned Aircraft Systems (UAS), not drones.  Drones are actually a different type of system and are very simple machines usually used for target practice.

But more importantly, why is the concern about ‘drone strikes’ misleading?  First, drones or UAS do not strike on their own.  This is not the Terminator where Skynet has come on line and the machines are taking over.  Unmanned aircraft are controlled by someone so to be concerned about ‘drone strikes’ makes the situation impersonal and ignores the real actor involved.  Second, the government has had aircraft that could be used to strike at people for decades.  A Predator is not the first aircraft that could fire a missile.  Look into how the U.S. targeted Admiral Yamamoto during WWII, or how we targeted Qaddafi in the 1980s, Osama Bin Laden in the 1990s, or Saddam Hussein in the 2000s using aircraft or cruise missiles.  So, why now are people suddenly concerned about aircraft strikes, just because there is no pilot on board?

A better term to describe this problem would be extrajudicial killings, or more importantly extrajudicial killings of U.S. citizens.  That term sums up the real concerns, which is what authority does the government have to kill people, particularly U.S. citizens, without due process.  The term ‘drone strikes’ just confuses the process by focusing on an instrument and scaring people about a tool that is neither good nor bad and does not put peoples’ attention on the real problem.  Would we solve anything if we pass a law that addresses ‘drone strikes’ on U.S. citizens but leaves the door open to use helicopters, fighter jets, cruise missiles, B-52 bombers, slingshots, and poisoned blow darts to kill people without trial?

The same could be said about the calls to curb ‘gun violence’ or enact more ‘gun control’.  Like the drone strikes phrase, guns are inanimate objects that are not violent.  Guns are not good or evil by themselves, they are a tool or device.  If people are really concerned because of some of the recent, high profile events like Newtown, MA or Aurora, CO a better problem to tackle would be the connection between mental illness and violence.  Does anyone think that Adam Lanza would have stopped what he was going to do if he came upon a sign that said the school he approached was a gun-free zone?  Or do we think that James Holmes was not going to attack a theater until he discovered that there are high capacity magazines out there.  If Colorado had passed the law limiting magazines to just 15 rounds a year sooner, would that have stopped anything?  We have to be intellectually honest here.

The real problem is why are people reaching a mental state where violence by any means occurs, whether that be with a gun, knife, bat, or by pushing someone off of a subway platform.  Until we begin to address the connection between mental health and violence, we are just avoiding the real issue by making laws that limit magazine capacity or change the way a buttstock on a gun looks.

So now that you have seen two current examples of how the wrong choice of words, either intentionally or unintentionally, can affect how we approach problems, what other examples will you see in everyday life?

Call for Action on the Budget

Call for Action on the Budget

This is an interesting link from Heritage.org on the budget.  Looking at this from a logical lens, I think items 2, 4, and 6 will depend on what side of the political spectrum you are on.

 However, it is hard to argue with the opening paragraph.  Regardless of whether you are a Democrat or Republican or favor more or less spending, the country needs a budget, period.  Not a continuing resolution or a short-term fix.  How can we prioritize where our spending goes when only one of the two houses passes a budget every year?

Big Gulps and Big Responsibility

As I write this post there are articles being posted that a judge in NYC has reversed Mayor Bloomberg’s large sugary drink ban.  My opinions on the ban are torn between two opposing thoughts.  

On the one hand, it seems that banning large sugary drinks is probably not very effective.  I can’t see how limiting large beverages is going to put a dent in a very complex obesity problem.  The larger concern that people raise is that it is a restriction of our freedoms.  We should be able to eat and drink whatever we want and do what we want to our bodies, right?

On the other hand, what we do to our bodies affects us all to some degree.  Health care costs related to obesity are extremely high and getting worse.  Because of the way our health care system is set up, those costs affect us all.  

So, while we all want to enjoy our personal freedom, with freedom comes responsibility.  While Mayor Bloomberg’s approach to this problem may have turned out to be ineffective, what actions should our elected leaders take to address the obesity problem in this country, if any?  If we want to retain our personal freedom, how do we also promote personal responsibility.  For people in favor of the ban I would say where does it stop?  What else can be banned?  For people who say they can eat and do whatever they want, I would say that is fine, just don’t ask the taxpayers to pay for your bad choices.  

The message is that freedom is not just a right we we enjoy, it is a responsibility we must take seriously.

Words Have Meaning, Part 1

The next time you read or hear something in the news, I want you to think of the particular words being used.  What type of meaning is the person trying to portray and does that meaning match the problem or issue at hand.  Words do have meaning and when they are not used correctly, can be part of the problem.

Here are two examples:

The War on Drugs
Mothers Against Drunk Driving

Both of these phrases have been used to describe societal efforts to solve a problem.  Both of the campaigns have involved a tremendous amount of time and resources.  The effort to curtail ‘Drunk Driving’ has seen some success, while the ‘War on Drugs’ has seen much less success.  The links at the bottom of this post show statistics for both problems.

So, why do we need to examine the words used to describe these two campaigns?  The ‘War on Drugs’, if taken literally, is a war on an object, a thing.  First, not all drugs are bad, so from the beginning the title of this effort does not make sense.  No one is trying to take down a Crestor or aspirin cartel.  But more importantly, drugs are the symptom of a larger, complex pattern of behavior that includes addiction, mental health, poverty, gangs and money, to name a few areas.  To say we are going to spend time and money to fight an inanimate thing and not focus on the root behavior and problems that lead people to abuse drugs, does not make sense and does not appear to have led to any real results.

On the other hand, the fight against ‘drunk driving’ targets a specific behavior.  It is not a war against cars, it is not a war against alcohol, it is not a fight against driving.  It is a focused effort on one kind of dangerous and criminal behavior.  And from the statistics, the rates of drunk driving incidents have been decreasing.  I am not trying to imply that drunk driving is decreasing simply because of the phrase used to describe the effort against it, but I do think there is some value in ensuring that we focus resources on finding and fighting real problems and not symptoms.  We can only do that we properly define and describe the problem in the first place.

After describing how the words we choose to describe a problem are important, the next post on this topic will look at events and problems that are clearly in the spotlight now and examine the words used to describe them.  In the meantime, think about how the idea of how we use words in our everyday lives can affect the outcome.  Do you just “go to the gym”, or do you conduct well-planned strength training?  Did you just “get a degree”, or did you gain a valuable education when you went to school?  Do you “make a quick phone call” to a loved one, or have a meaningful conversation with someone?

http://www.drugabuse.gov/related-topics/trends-statistics/monitoring-future/trends-in-prevalence-various-drugs

Fitch Downgrades Italy’s Credit Ratings – WSJ.com

Fitch Downgrades Italy's Credit Ratings – WSJ.com.

Keep in mind, as the post https://voxlogicae.wordpress.com/2013/03/06/credit-ratings-and-debt-to-gdp-ration/ pointed out, Italy’s Debt to GDP ratio is about 126%. The U.S. is not far behind at 107%.

The Abortion Debate from a Logical Lens

Have you ever had an argument or discussion with someone, maybe even a loved one, and after a while realized that the two of you weren’t even arguing about the same thing?  A lack of communication or a poor choice of words clouded the issue?  A recent discussion on another site highlighted the fact the the sometimes emotional debate we see in this country on abortion is completely missing the point.  

The two sides on this issue describe themselves as pro-life and pro-choice. On the surface, this is already a problem because in any true debate the two sides should, at a minimum, be opposed to each other’s views.  In the labels used for the two sides in this argument both sides are “pro”-something different.

The real debate we need to have is ‘What is Life’?  What do we consider human life and when does it begin?  This debate also has implications for the other question of when does life end?

The argument about when life begins covers a range of opinions.  On one side of the debate, life begins at conception.  On the other end of the debate, life begins at birth.  So there are about 9 months in between in which the two sides of this debate are not arguing the same point.  If you believe that life begins at conception, then the idea that an abortion is a ‘choice’ someone can make is a scary thought.  We can not choose to end the life of a friend or neighbor so why can we choose to end the life of a baby in the womb under anything but extreme circumstances?  If you believe that life does not start until birth then the thought of someone against abortion being pro-life is also absurd because, in your opinion, there is no life to be for in the first place.

When we as a society can come to grips with that is life and when life begins, then the abortion debate can not carry the same labels it does now.  But where do we stand as a society?  

At a minimum, it appears that most do not believe that life only begins at birth.  In California, the jury in the Scott Peterson case convicted Peterson in the death of his unborn child.  California is hardly a conservative bastion, yet they indicated by their conviction that they believed Peterson took the life of an unborn child when he killed his wife, Laci.  Most states restrict late-term abortion after the fetus is considered viable.  The definition of viable is left open to interpretation.

However, an understanding of the term viable and a broader understanding of what we consider life is all-important to this debate.  Once you establish that line, it is no longer a question of choice, it is a question of life.  Prior to that line it is not a question of life, because no life is established.

The discussion on what we consider human life also has much broader implications.  If we only use the term viable to describe life, then should we keep people on life support systems in the event of injury or illness?  If their life is no longer ‘viable’ without outside support, are they still alive?  Does someone else get a ‘choice’ on what to do with the life support decision?

Regardless of which side of this debate you are currently on, the larger issue of how and when we consider ‘life’ is one of the most important discussions we can have in this country that has implications beyond abortion.  Only when we look past the currently false argument of pro-choice vs. pro-life can we have meaningful progress on this issue.

%d bloggers like this: