Aggregated Awareness

From Gonzalo Lira's blog via Zerohedge comes this excellent commentary on why both 'Austerity' & 'Stimulus' economic policy measures, being espoused by advocates of both camps in governments & monetary authorities around the world, are doomed to fail.

The author's framing of the mainstream definition of 'Austerity' & 'Stimulus', is such that both policy initiatives are but two sides of the same coin.

A coin that could also be named: 'Maintain Bubble Aggregate Demand' and 'Maintain Bubble Asset Prices', which is was forged and tempered by the "subsidised money" of the last 30 years, never to be repeated for a long time.

Excerpt: "...The fiscal spending camp are basically Neo-Keynesian, “saltwater” economists; ‘cause they’re on the coasts. They consider the maintenance of aggregate demand as the primary goal of macroeconomic policy...

...The fiscal austerity camp, on the other hand, are basically Monetarists, with a few Austrians thrown in for flavoring—so-called “sweetwater” economists; ‘cause they’re in Chicago and Middle America. This camp considers the stability of asset prices in real terms to be necessary for the sound running of the economy...

...The two camps view it as “normal” for both aggregate demand and asset levels to continuously and predictably (on a macroeconomic level) accrete. When demand and/or assets plateau (or let alone fall), one or the other camp gets into a tizzy—which makes perfect sense: Each camp views either aggregate demand (for the Neo-Keynesian “saltwater” economists) or asset levels (for the “freshwater” austerity camp) as the cornerstone of economic activity, and therefore of economic prosperity...

...They might as well just print up placards, and go march on either end of Wall Street: “What’s Good For Aggregate Demand is Good For America!!!” on one side, “What’s Good for Asset Levels is Good For America!!!” on the other.

Neither policy prescription is inherently evil—or even inherently wrong. Both policy prescriptions are simply trying to bring back the good ol’ days—when everyone had a multi-million dollar McMansion-slash-ATM, and everyone drove the latest 3-ton urban assault vehicles to go pick up little Junior and little Missy at the private daycare center and soccer practice. In essence, both approaches are seeking a status quo ante.

Neither camp, however, realizes that what they both want is impossible—not because they are contradictory or mutually exclusive: But because the aggregate demand increases and the asset level increases we have experienced over the past 30 years or so were artificial and illusory. Both the massive aggregate demand increases over the last 27 years, and the massive asset level increases over the last 27 years, were both caused by the same culprit: Subsidized money..."

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