In the United States, the only honest fiscal solution is to end the Bush tax cuts, end foreign military adventurism, stop pretending that it's necessary to spend more on military and ostensible national security hardware than the rest of the world combined, and end all forms of corporate subsidies. If a corporation cannot survive on its own it deserves to die. If a corporation's survival serves some vital social or security need and it cannot survive on its own, then it should be socialized rather than publicly subsidized. After all, public subsidies to privately held corporations already are a form of socialism, it's just that much of the money goes into private pockets rather than serving the public good.
That we are even discussing economic austerity is itself proof that the political systems of the developed world are but servants to private industry. We know how the world dug itself out of the Great Depression, and it wasn't economic austerity. It was deficit spending. It was Keynesian economics. It was a widespread series of policies that laid the foundation for true economic growth. From the ground up. The top resting securely on a solid base rather than on the shoulders of an overburdened populace. And as more and more people had the means to participate in the economy the short-term deficits began to resolve themselves. When people have money to spend they also have taxable income. When people have money to spend the businesses that profit off their spending also have taxable income. A reviving economy means greater government revenue because more people and businesses are contributing to it. A reviving economy means fewer government outlays, not as a form of social punishment but because there is less social need. It's not complicated.
European voters in the past decade went mostly conservative, electing the wrong governments at the wrong time, and the embrace of austerity programs by those governments has provided a clear lesson for everyone—not that a lesson should have been needed, given the monumental historic successes that were the New Deal and the Marshall Plan. But the economic news out of Europe this year has been almost relentlessly bleak, and last month it was reported that economies across the Eurozone are shrinking again, with a double-dip recession looking increasingly likely. The Organisation for Economic Co-operation and Development predicted that the anemic British economy also would slip back into recession. Across the continent, consumer confidence has collapsed. And of course this economic turmoil is only proving yet again what shouldn't even need to be proved: that deep recessions aren't solved by focusing on deficits. From The Economist, in January:
In the euro zone, Germany, France, Spain and Italy all managed to reduce their structural budget deficits, the latter three thanks to austerity. All are expected to reduce those deficits further this year. But this is not the good news it seems. Austerity, the IMF has found, could be making Europe’s crisis worse, rather than better.In February, Gerard Lyons, the chief economist and head of global research at Standard Chartered, summarized to Sky News:
Europe doesn't have a debt problem, Europe has a growth problem.And that's the whole point. Because reducing deficits does not revive struggling economies. Direct effort to stimulate growth does. And how is a shrinking or stagnant economy supposed to grow when the actual people actually trying to survive in that economy are being punished with deliberately imposed further economic hardship? Again, this is not complicated.
Incredibly, even as the International Monetary Fund was pressuring Greece to accept further austerity, the head of its mission in Greece admitted that austerity was doing more harm than good:
A leading architect of the austerity programme in Greece – one of the harshest ever seen in Europe – has admitted that its emphasis on fiscal consolidation has failed to work, and said economic recovery will only come if the crisis-hit country changes tack and focuses on structural reforms.Depending, of course, on what is meant by achievement. Which Thomsen acknowledged:
Poul Thomsen, a senior International Monetary Fund official who oversees the organisation's mission in Greece, also insists that, contrary to popular belief, Athens has achieved a lot since the eruption of the debt crisis in December 2009.
In an extraordinary departure from the script the IMF has followed to date, the Danish official, who is also in charge of the IMF programme in place in Portugal, acknowledged there was a "limit" to what society could endure.And even more incredibly Thomsen wasn't the only one deviating from the austerity script:
"While Greece certainly will have to continue to reduce its fiscal deficits, we want to ensure – considering that social tolerance and political support have their limitations – that we strike the right balance between fiscal consolidation and reforms," he said. As such, the IMF had cautioned against "an excessive pace" of fiscal reduction.
The leaders of the International Monetary Fund, the World Bank and the World Trade Organisation on Friday issued a warning about the economic and social risks of austerity programmes in a "call to action" designed to boost growth and fight protectionism.Which is even more incredible considering that Greece at that very moment was being pushed by the IMF and others to drink even more austerity poison. So what's the real purpose? Why impose even more crushing austerity on an already devastated population? As the headline to an article by Floyd Norris in the New York Times succinctly explained:
Expressing concern about the weakness of economic activity and rising unemployment, the IMF's Christine Lagarde, the World Bank's Robert Zoellick and the WTO's Pascal Lamy joined the heads of eight other multilateral and regional institutions in calling for policies to create jobs, tackle inequality and green the global economy.
Banks Come First in a Greek Rescue PlanAnd that's the bottom line. Austerity is not about saving failing economies, because it's obvious that those failing economies are not being saved. They are, in fact, being damaged even worse. In January, Nobel Prize winning economist Joseph Stiglitz provided the perfect analogy:
"It reminds me of medieval medicine," he said. "It is like blood-letting, where you took blood out of a patient because the theory was that there were bad humours.
"And very often, when you took the blood out, the patient got sicker. The response then was more blood-letting until the patient very nearly died. What is happening in Europe is a mutual suicide pact," he said.
Keynesian economics, which require governments to help sustain demand, suggests that austerity measures should be imposed when an economy is booming, not waning.
Keynesian economics suggests deficit spending as a means of jump-starting a waning economy, and it only proved itself by ending the Great Depression. There is no polite way to say this: the imposition of austerity at this moment in economic history is stupid. Not just a little stupid, staggeringly stupid. And not just staggeringly stupid, but on a human scale, just plain old cruel. Medieval cruel. Imposed suffering cruel. Deliberately imposed suffering cruel. And the results speak for themselves, because as bad as the abstract economic data look, the human costs are even worse. The human costs are profoundly disturbing. As reported by the United Nations last October:
Austerity measures adopted by developed countries to address the current economic upheaval hurt global growth and pushed millions more into poverty just when greater social protection was needed, the Third Committee (Social, Humanitarian and Cultural) was told today.How bad is it?
- In Greece, we now have record unemployment, which includes the majority of young workers. Homelessness is up 20 percent, with soup kitchens in Athens reporting record demand, and the usually low suicide rate having doubled.
- Portugal has complied completely with the austerity demands it accepted for its bailout deal, but its debt is growing and its economy is shrinking, its unemployment rate continues to reach new heights, there is a crisis in medical care, and a 40 percent rise in emigration, with the Portuguese government acknowledging its own failure by actually encouraging its citizenry to leave.
- In Spain, austerity has resulted in falling industrial output and deepening debt, with record unemployment and a stunning rate of 50 percent youth unemployment. And the Spanish government's incomprehensible response is to impose even more crushing austerity.
- Ireland has fallen back into recession as austerity has led to falling economic output. A better future is being sacrificed, as young workers look for work abroad, "generation emigration" expected to number 75,000 this year.
- The success of Italy's wealthy technocrat government was concisely summarized in similar terms:
Italy's austerity measures are stunting activity in the euro-zone's third-largest economy, recent budget and economic data show, suggesting the steps are backfiring.
Italy's industrial production is falling while its rate of unemployment is at its highest in more than a decade, and its priceless cultural heritage is literally crumbling. But the wealthy technocrats themselves are ensuring that they they don't have to share the suffering.
- Even in the Eurozone's stronger economies, such as Holland, austerity is hurting the economy, people, and culture, and risks backfiring even more.
- The austerity program of French President Nicolas Sarkozy has led to a stagnant economy, with ten consecutive months of rising unemployment and factory output stalled and business confidence in decline.
- Even economic powerhouse Germany, while taking advantage of the new flood of migrant workers fleeing Europe's weaker economies, is facing an austerity backlash.
- Outside the Eurozone, the austerity program imposed on Britain by the relentlessly mendacious Cameron government has resulted in an economy that keeps shrinking, with the OECD saying it is back in recession, with unemployment soaring, and the overall brunt being borne by the elderly and minorities and the very young. An additional hundred thousand are predicted to be out of work by autumn.
The economies of Europe are imploding, as conservative governments continue to pursue exactly the wrong policies at exactly the wrong time. Europe has a growth problem, but Europe's conservative governments continue to shrink national economies. As explained by Nouriel Roubini, who along with Stiglitz and Paul Krugman was one of the few economists to predict the global economic collapse:
The trouble is that the eurozone has an austerity strategy but no growth strategy. And, without that, all it has is a recession strategy that makes austerity and reform self-defeating, because, if output continues to contract, deficit and debt ratios will continue to rise to unsustainable levels. Moreover, the social and political backlash eventually will become overwhelming.And that backlash has begun, with riots in Greece and general strikes in Portugal and Spain.
If you want an economic preview of what a Republican government would be in the United States, all you have to do is look to Europe. It's the same prescription of brutal budget cuts disproportionately falling on the backs of the less affluent and the historically less privileged. The Republicans will offer a presidential nominee who would have let the auto industry go bankrupt, who thinks unemployment insurance is a disaster, who would cut Medicare and Social Security benefits, and who doesn't even want us to know where else he would cut spending. The Republicans will offer a presidential nominee who will cut benefits on just about everyone who needs them in order to finance tax cuts on corporations and the very wealthy. The Republicans will offer a presidential nominee whose austerity would be as cruel and stupid as that now crushing Europe, but which would benefit the extremely wealthy such as himself.
We have Republican Congressional leaders who want to repeal the Obama health care law, which would explode the national debt, but who aren't offering anything to replace it. House Republicans just voted to end Medicare, while proposing budget cuts that would decimate health care spending and cost a million students their Pell Grants. The Republican budget would particularly hurt low income Americans and seniors and women. And even as the Department of Agriculture reports how food stamps reduce poverty, the Republicans want to cut them, too. And even as new data proves that the welfare reform of sixteen years ago has resulted in more child poverty, the House Republican budget leader wants even more of that.
Two dozen Fortune 500 companies paid no taxes last year, and bankers are forming a new SuperPAC, but even as Republicans use deficits as an excuse to push an agenda that would punish tens of millions of people who are less affluent and less politically powerful, they voted to continue to subsidize Big Oil, they continue to focus on extending the very same Bush tax cuts which soon will be the deficit's primary driver, and they would cut the top tax rate to the lowest level since the Hoover Administration. They don't seem to remember what that administration wrought, and they certainly don't want anyone to remember how that disaster was ended. As Nobel Prize winning economist Paul Krugman wrote, in September of 2010:
Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity. Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits.In Europe we are witnessing macroeconomic malpractice on a historic scale, and there is no excuse for the unnecessary suffering it is causing. It is about the wealthy and the powerful cruelly exploiting a crisis to consolidate their wealth and power, but it is much worse than that. Because it also is stupid. It is stupid not only because it is an economic agenda that is making economies much worse, it is stupid because there is only so much cruelty people can take. The 1930s were a time of tremendous displacement and unrest, and some think the deliberate Keynesian deficit spending that was the New Deal and the tragically necessary Keynesian deficit spending that was the World War II economy saved the United States from itself collapsing into one or another of the forms of dangerous political extremism that it spent more than half a century fighting. In Europe in the first half of the Twentieth Century, shattered economies and extreme social inequities led to some of the most vicious and catastrophic political reactions in human history.
The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.
Economic austerity is both cruel and stupid. The lessons here are obvious. Governments and voters have choices. The consequences of those choices will define the course of history for decades or more.