How can you talk austerity with busness people who always resort to a household budget for a favorite metaphor?
One way to do it is ask them to read Martin Wolf of the Financial Times who has been a stalwart of neoliberal Austrian economics for decades. The high priest of the FT is apparently a reasonable man who understands that one's worldview can be mistaken.
I love how he breaks it down:
(Note: if over your FT quota of free articles for the month, then googling the title "The Sad Record of Fiscal Austerity" will get you there.)
Here's the basic gist of how Wolf would explain the problem of austerity to business people:
What would that change of policy consist of? The answer is simple. First, serious attention needs to be paid to why the UK non-financial corporate sector is running what seem to be structural financial surpluses, as Andrew Smithers of London-based economic advisers Smithers & Co points out. Second, the austerity on current spending needs to be made explicitly contingent on the economy: more when the economy grows faster and less when the economy grows more slowly. Third, every effort must be made to accelerate any structural reforms that might encourage higher investment by the private sector. Fourth, the banking sector must come clean on losses and accept needed recapitalisation so that it starts lending again. Finally, the government must recognise that current rates of interest provide a once in a lifetime opportunity for higher public investment.
Even better, Wolf sees the need for a total paradigm change:
Mr Wolf has come to the conclusion that the macroeconomic paradigm "failed" and the orthodoxy was simply "wrong", in relation to the importance it gave to inflation targeting and the mistaken belief that "cleaning" after a crisis would be cheaper than "leaning" against one, in terms of Government policies to prevent a crisis from occuring.Here Wolf makes a call for different and new ways of educating our economic elite, more broadly for one, outside the realms of influence from finance and business secondly. He called for "engineers" of economies, rather than theoreticians and ideologues. Sounds nice, if you can get outside ideology--which you can't--but you can try. Yet, in the USA, we are savaging higher education just as we are savaging primary and secondary ed. The likelihood is that we'll be less capable of making predictions in a future in which people have less expertise than they do now, or have had in the past.
What this implies, he said, is that a good deal more leaning against risky behaviour is required by governments, including regulation of banking, less risky financing of property, and much larger counter-cyclical capital investment.
Wolf fears we'll be lead by people such as this: Jean-Claude Trichet, ex-President of the European Central Bank, complained last year that, “as a policymaker during the crisis, I found the available economic and financial models of limited help. In fact, I would go further: in the face of the crisis, we felt abandoned by conventional tools.” Trichet looked for inspiration from other disciplines—physics, engineering, psychology, and biology—to help explain the phenomena of the economic meltdown. For instance, a physicist and a climate change expert weighed in to discuss the flows and equilibria of the world economy. In one case, an epidemiologist suggested that the techniques used to study infectious diseases could trace unusual patterns of financial contagion. Trichet’s rejection of the economic models he was most comfortable with as tools of analysis was quite telling. Indeed, one Nobel laureate economist, Robert Lucas, from the same school as Trichet argued that “the crisis was not predicted because economic theory predicts that such events cannot be predicted.”
Wolf says one way to predict them is to include the Great Depression (and presumably the financial meltdown of 2007-2008) in the models. But to do so would require greater vigilance among the financial sector (greater regulation) and who knows if Lucas has the guts to admit that.