
There is no correlation between austerity and debt reduction - MaysonL
http://equitablegrowth.org/2015/06/28/must-read-christian-odendahl-no-correlation/
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icu
I'm sorry but I reject this line of reasoning. If I was to use an analogy it
would be along the lines of, "It's not my fault I'm always broke (even though
I keep borrowing and spend everything I have)". Sounds ridiculous doesn't it?

Nations who reduce spending but do not get rid of their principal debt (not
just keep up with interest payments) will never get out of that debt.

But saying it's not a choice (as implied in the link) is bunk.

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the_why_of_y
This is not "a line of reasoning." This is a data set published in a paper by
the IMF:

[http://www.imf.org/external/pubs/ft/wp/2013/wp1367.pdf](http://www.imf.org/external/pubs/ft/wp/2013/wp1367.pdf)

See figure on top of page 12, "Figure 5. Correlation between Discretionary
Fiscal Policy and Change in the Debt Ratio in European and G20 economies
(1980-2011)"

"We identify annual episodes of discretionary fiscal tightening in European
(EU27) and other G20 economies since 1980, using, as a criterion, a positive
increase in the structural primary balance. In general, the debt ratio does
not decline when the structural primary balance ratio improves from one year
to the next. Instead, we find a (small) positive correlation between fiscal
consolidation and annual change in the debt ratio, as indicated by the
positive slope of 0.3 in Figure 5\. This result is of course only
illustrative, as correlation does not entail causality and the data dispersion
is quite large. Therefore, a more advanced econometric analysis is warranted
to determine whether a robust empirical relationship exists between fiscal
consolidation and the initial increase in the debt ratio."

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icu
I've consulted to the IMF as a finance and economic consultant so I'll take
that report as conjecture and not fact.

Surely you can't rebuff my reasoning here.

Governments control spending, and have a large part in what they earn
(taxation, economic, monetary and fiscal policy).

If you spend more then you earn, and you spend too much, the debt repayment
will overcome your ability to pay off your debt.

If you cut back and spend less than your means, and you use the net excess
cash to pay off your debts (that can be paid down on a capital, and not
interest only basis), then you can get back to a situation where you are out
of debt and can spend more again.

I submit to you that Government spending works the same way.

What makes Government debt evil IMHO is that it is burden forced onto future
generations to the advantage of the current one.

~~~
the_why_of_y
The old government = household fallacy. A government is fundamentally
different from a household because its spending is a significant percentage of
its own income. Every time a dollar originally spent by the government changes
hands in the economy, taxes are paid.

Also, debt always has 2 sides: it is a liability of the government, but an
asset of the lender, who is very often a citizen of the same country and whose
offspring will inherit the claims.

