Photo by Dorothea Lange
The flames from the massive experiment with austerity won't gutter immediately. In their wake they are leaving extraordinarily high levels of unemployment, increased doubt about the social contract between government and citizens, and debts that are actually higher than before the fire began. Those wounds will ache for a long time to come.
And of course the flames still burn bright in America, where austerity hides under the name of sequestration. Only in America, the damage from this fire is rather localized. Just this week we had a sterling example of how any aspect of austerity that inconveniences the well-heeled immediately draws a bucket brigade of het-up senators (including many who should damn well know better) while programs for the poor are allowed to crumble into ash. After all, children going without a teacher (or a meal), or a CEO forced to wait an extra half hour or that flight to Vegas... what's really important here?
That the major academic paper many European economists had used to justify their actions has proven to be stitched together from bad math and built-in presumptions only greased the tracks for this change of direction. The reason that European countries are turning away from austerity is more simple than a couple of economists being caught with their fingers on the scale: Austerity doesn't work. Nation after nation gave it a go, and nation after nation watched as it made a bad situation much worse.
The real wonder is that anyone ever thought it would. It's not just that the principles behind austerity defy common sense, it's that they have also failed every test of history. Keynesian economics didn't appear just because one British economist had a dream. They evolved in response to the utter failure of previous instances of austerity. They persisted for decades precisely because they definitely and demonstrably worked.
So why turn again to the system that has failed so often when you had right at hand a tool that you know will work? Simple enough. Keynesian economics has answers, but not the right answers, not the treasure that economic schools from Austrian on have sought for so long. They don't provide justification to blame the failures of the economy on the actions of government and the sloth of the poor. For just a moment there, with austerity in hand, they thought they'd found the grail.
The last sixty years of economics, the whole Chicago School—Heritage Foundation—American Enterprise Institute—Amity Shlaes fantasy epic, has been about the quest for that justification. Has been about promoting the evidence-free contention that the solution to any economic woe is fewer taxes for the rich, fewer programs for the poor. Has been about building the poor into the whipping boy for any economic sin. It's been perhaps the greatest slight of hand in history, and the most effective. It still is.
How do know it's still working? Because people, even people who are far from wealthy, are still focusing their fears in the wrong direction.
They're still blaming the economic crisis on loans awarded to the poor, rather than the banks and brokers who created speculative investments valued at many thousand times the sum of all those loans. They're still more concerned that someone on welfare might not be working hard enough to deserve a life of grinding poverty rather than being upset as CEO salaries move inexorably from merely extravagant to obscene. They've accepted that cutting spending is a good thing and that "redistribution of wealth" is one short step away from the Holocaust. They've agreed that making sure air travel is speedy is more important than making sure the homeless are sheltered. They've bought into austerity.
The real threat to our economy, in fact to our whole economic system, is the unprecedented concentration of wealth. The shift of more and more capital into fewer and fewer hands is directly responsible for the latest crash, directly responsible for the slow recovery, directly responsible for the failure of four decades of innovation and sharply increasing productivity to produce security and a strong middle class.
A stable, flexible economy has its base in a broad middle class. It has wealth spread across many hands. That kind of economy fosters the development of new industries, promotes economic mobility, insists on some relationship between risk and reward. But an economy where all the resources are in a few hands is built of walls; walls that restrict upward mobility, that shield existing roles, that protect the wealth of the few no matter how wildly they risk it.
It's an osteoporosis of the economic system, a weakening of everything that makes a market economy work, but don't worry. If you have a problem, the congress will hurry to provide a solution. As long as you're rich.