Sunday, March 25, 2018

Austerity: the Black Hole of National Economic Recovery



Over the past 40 years our American tax base disappeared offshore, industry followed, we made consumerism a national goal and the rich got rich while the rest of us ended up in the dumper.

Schools are a wreck, teachers, police, firefighters and mid-level workers across the board are struggling, savings are non-existent, university education is out of reach, healthcare is broken, kids can no longer expect to do better than their parents and homelessness is taking over our cities. In the meantime, military spending for a nation that hasn’t won a war in the memory of any but our oldest citizens sucks all the oxygen from our economic system.

The list goes on. The list elected Donald Trump in a moment of national pain and frustration that exposed all that pent-up discomfort that was going on outside the lives of the comfortable. 

But we’re going to fix it.

The collective wisdom of complicit Democratic and Republican legislators demand austerity in order to achieve that fix. And they are wrong—dead wrong, but we will have it.

Budgets for infrastructure, with 54,000 bridges unsafe for travel, are delayed once again because they probably won’t fall down before the next election. Chicago’s sewer and water system was built shortly after the Civil War and hasn’t been upgraded since in the face of 500 leaks each and every day. That’s simply not on the political agenda, because it doesn’t look as pretty as Millennium Park.

A record-breaking national budget has just been approved, built on cuts to agencies that fund everything from welfare safety nets to environmental safeguards. Unsustainable austerity marches on, dividing us further. Abraham Lincoln’s warning that a house divided against itself cannot stand falls on deaf ears.

We are distracted elsewhere, worrying about Facebook and Cambridge Analytica.

All of which might be grudgingly acceptable if austerity had any track-record for bootstrapping a nation back into prosperity. But it doesn’t. There is not a single instance in the history of the world where austerity has saved a nation in economic pain.

Argentina agreed to an International Monetary Fund demand for austerity in 1984 and defaulted on its debt in 2001 and again in 2014. 

Mexico. If there is one overwhelming lesson from the debt crisis that struck Mexico and other Latin American countries so hard three decades ago, it is that countries that cannot grow will not pay.[1]

Great Britain suffers from an austerity program stuffed down its throat by its Tory (conservative) Party, as its National Health Service predicts 100 deaths a day over the next five years, a finding likened to ‘economic murder.’ Its homelessness, social safety nets and public services are in shambles, with no end in sight.

Greece, unable to sustain a debt load created by a series of grafting and fraudulent governments and abetted by usurious Goldman Sachs loans, is rapidly disappearing down the rabbit-hole of insolvency. Spain, Portugal and Italy are close on its heels.

Worldwide, Ireland, Japan, Poland, India, the United States (yes, it too), Indonesia, Brazil, Venezuela, South Africa and Australia are all on the verge of financial emergency. Austerity will not save a single one of them. Yet measures toward austerity are sure to drive them all deeper into financial disaster.

Nobel Prize winning economist Paul Krugman has a word or two to say about austerity.

“In May 2010, as Britain headed into its last general election, elites all across the western world were gripped by austerity fever, a strange malady that combined extravagant fear with blithe optimism. Every country running significant budget deficits – as nearly all were in the aftermath of the financial crisis – was deemed at imminent risk of becoming another Greece unless it immediately began cutting spending and raising taxes. Concerns that imposing such austerity in already depressed economies would deepen their depression and delay recovery were airily dismissed; fiscal probity, we were assured, would inspire business-boosting confidence, and all would be well.

People holding these beliefs came to be widely known in economic circles as ‘austerians’ – a term coined by the economist Rob Parenteau – and for a while the austerian ideology swept all before it…

And then the fun began.

On the other side of the ledger, the benefits of improved confidence failed to make their promised appearance. Since the global turn to austerity in 2010, every country that introduced significant austerity has seen its economy suffer, with the depth of the suffering closely related to the harshness of the austerity. In late 2012, the IMF’s chief economist, Olivier Blanchard, went so far as to issue what amounted to a mea culpa: although his organization never bought into the notion that austerity would actually boost economic growth, the IMF now believes that it massively understated the damage that spending cuts inflict on a weak economy…

The IMF came to that realization just a few years too late for their whipping boy, Greece.

I often encounter people on both the left and the right who imagine that austerity policies were what the textbook said you should do – that those of us who protested against the turn to austerity were staking out some kind of heterodox, radical position. But the truth is that mainstream, textbook economics not only justified the initial round of post-crisis stimulus, but said that this stimulus should continue until economies had recovered.

And so?

What we got instead, however, was a hard right turn in elite opinion, away from concerns about unemployment and toward a focus on slashing deficits, mainly with spending cuts. Why?...

Why indeed?

Conservatives like to use the alleged dangers of debt and deficits as clubs with which to beat the welfare state and justify cuts in benefits; suggestions that higher spending might actually be beneficial are definitely not welcome. Meanwhile, centrist politicians and pundits often try to demonstrate how serious and statesmanlike they are by calling for hard choices and sacrifice (by other people)…

The same call as is trumpeted by those who would send other people’s children off to war. Those who never served are always first to eat. Hard choices and sacrifice are always called for by the comfortable and suffered by those less fortunate.

By about two years ago, then, the entire edifice of austerian economics had crumbled. Events had utterly failed to play out as the austerians predicted, while the academic research that allegedly supported the doctrine had withered under scrutiny. Hardly anyone has admitted being wrong – hardly anyone ever does, on any subject – but quite a few prominent austerians now deny having said what they did, in fact, say. The doctrine that ruled the world in 2010 has more or less vanished from the scene.”

But not before austerity knocked many sovereign nations to their knees, without so much as a single success in the history of the world. There is much to be learned from that for those who have an ear for history. Did austerity save Europe and Japan after WWII? Not by the hair of your chinny, chin, chin. The Marshall Plan saved those destroyed nations, but modern generations have forgotten all that.

As usual, those who suffer the errors of history are seldom its authors.




[1] From Mexico, Some Lessons for Europe, NYTimes, April 9, 2013