Thread: Cyprus resists?
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Old 2013-03-25, 11:14   Link #73
monsta666
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Join Date: Jan 2012
Location: London, England
Age: 37
Quote:
Originally Posted by MeoTwister5 View Post
I'm going to assume that for the most part the IMF is actually trying to help bankrupt countries. It's just that these countries seriously can't do enough fiscal overhauling to use the money properly. It's like tossing money at a drunk hobo. You think that if they had more money they'd make some sense out for their lives, but in reality they'd end up doing the same with their money anyway.
If you want to learn more about IMF screw-ups you should read the book Shock Doctrine by Naomi Klein. Not all bankrupt countries in need of bailouts were reckless drunk spenders. Also as noted by earlier posters before these IMF bailout/Austerity packages Ireland and Spain had fiscal surpluses and the deficit in Italy was tiny certainly below the 3% limit laid out in the EU laws. So this definition of irresponsible spending is certainly not universal for all the countries bailed out.

When it comes to deficits and recessions it can be a bit of chicken and egg scenario. What came first the deficit or the recession? In some cases such as Greece the cuts back from excess spending caused a recession whereas in other cases the recession caused a reduction in tax revenues and a increase in government spending (due to rising unemployment) which creates the deficit. Further austerity can in some cases paradoxically increase the deficit as more austerity can mean declines in government revenues exceed the lower costs in government spending. This has been the case in Greece and even in England where the austerity measures have done nothing to reduce the deficit as all gains made in savings where offset by declines in government revenues.

Austerity and saving may sound good on paper as we tend to think of a countries budget plan like that of a personal budget. If we reduce costs and pay of our debts we can strengthen our financial position and have a better future. Whilst this is certainly true on a micro level if taken on a macro level all we are doing is reducing gross spending which acts as a drag on economic growth. If the drag is big enough it can actually make the deficit worse. That is why a robust plan for growth must be brought in place in conjunction with an austerity plan. Blind austerity measures with no accompanying plans for economic expansion is just a recipe for a disaster (and this is what the IMF has largely been promoting).

In any case, the important point to grasp is optimal decisions made by individual people may not lead to optimal scenarios on a macro level for society in general. This issue is kind of related to the tragedy of the commons dilemma although it is not quite the same so I hesitate to bring it. The same sort of dynamics are displayed though.
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