Here's an interesting article from "Naked Capitalism", written by Bill Black.
Please follow the link to the original.
By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.
This column was prompted in part by reading RJ Eskow’s column, which alerted me to
Anne Applebaum’s September 13, 2010 column celebrating
Britain’s embrace of austerity and the Conservative Party.
I was already planning a piece responding to
Applebaum’s Washington Post column
about the consequences of European austerity published on July 25, 2012
(her birthday) and the contrast to a Wall Street Journal news story
that same day announcing that austerity had, as we predicted, thrown
Britain back into recession when I read Eskow’s column.
With the U.K. in a double-dip recession that is the worst in 50
years, the data also add to pressure on Treasury chief George Osborne,
who
faces calls to ease the pace of [austerity] measures that critics say are stifling growth.
Applebaum’s 2010 column on Britain’s embrace of austerity deserves to
live in infamy. Eskow is correct that she takes palpable glee in
economically illiterate actions certain to throw Britain back into
recession and harm the working class in order to make the wealthiest
Brits even wealthier.
LONDON—Vicious cuts.” “Savage cuts.” “Swingeing cuts.”
The language that the British use to describe their new government’s
spending-reduction policy is apocalyptic in the extreme. The ministers
in charge of the country’s finances are known as “axe-wielders” who will
be “hacking” away at the budget. Articles about the nation’s finances
are filled with talk of blood, knives, and amputation.
And the British love it. Not only is austerity being touted as the
solution to Britain’s economic woes; it is also being described as the
answer to the country’s moral failings. On Oct. 20, the government will
announce $128 billion worth of spending cuts, and many seem positively
excited about it. OK, the trade unions are not so excited, but Nick
Clegg, the deputy prime minister and leader of the Liberal Democrats—the
smaller party in the governing coalition—is overjoyed. Recently, he
gave a speech in which he explained that tough choices had to be made,
so that “we will be able to look our children and grandchildren in the eye and say we did the best for them.
As a journalist, Applebaum knows not to bury the lead. She,
appropriately, packs here two first paragraphs with her major themes.
Those themes include the most vital issues of economics and governance
that (modestly) democratic governments face. Britain was just emerging
from recession. The nature of the recovery – modest and slow – was
accurately predicted by many economists who had noted that the stimulus
measures were grossly inadequate, but barely sufficient to make a quick
“double-dip” back into recession unlikely. These accurate economic
predictions, of course, did lead to praise for the economists or large
popular efforts for greater stimulus to build on the modest successes of
the modest stimulus.
Instead, the framing became that sovereign debt, even in the midst of
recovery from a “Great Recession” represented “moral failings.”
Implicit in that framing was the concept that a government with a
sovereign currency (like Britain) was just like a private household.
From the standpoint of a private household, debt was framed as “moral
failings” and conflated with being “profligate” and placing “our
children and grandchildren” in dire straits as they tried to dig their
households out of the debt burdens we had placed on them. Under this
framing, we had not placed those burdens on our progeny for any higher
purpose (such as defeating the Bosch), but rather for venal, selfish
purposes – we used the debt to buy toys and then, childishly, demanded
that the State bail us out of the inevitable results of our profligacy.
None of this had much resemblance to reality. Nations with sovereign
currencies (the Brits wisely refused to join the euro) are not remotely
like private households when it comes to debt. The simile is one of
the classic errors that economists always have to explain to students.
Nations adopt “automatic stabilizers” in order to make recessions far
less severe and recoveries quicker. The stabilizers work by acting in a
counter-cyclical fashion. Austerity during the recovery from a
recession is a pro-cyclical policy that makes the recession worse and
harms the recovery.
The pro-austerity framing that Applebaum described also means that
austerity must represent superior morality and that the greater the
austerity we champion the greater our moral superiority. This explains
the competition in calling for “savage” cuts and the delight in gore.
The more programs that aid the poor that we “amputate”; the greater
moral superiority we demonstrate. It reverses the Gospels, but it
certainly is an attractive framing for the wealthy.
The Labour Party was not worth discussing. The British had just been
repudiated in the polls. It was, in any event, the “New” Labour Party
that explicitly repositioned itself as the friend of big business,
particularly giant finance. The “Lib-Dems” were delighted to help the
Conservatives “take an axe” to social programs that aided the poor and
working classes. Nick Clegg asserted that austerity programs certain to
cause large numbers of
parents
to lose their jobs while slashing working class wages for those who did
not lose their jobs was essential to help working class children. The
program was economically illiterate, self-destructive, brutal to the
working class – and wildly popular at the outset. The Conservatives
represent the wealthy and are proud of it – they salivated at the
prospect of savage austerity aimed at the working class.
Only the unions were left as reliable defenders of working class
families, but they were politically powerless to do so. Applebaum, of course, gives them no credit for their defense.
Applebaum then combines faux moral superiority with faux history, to
explain the moral virtues of austerity during a Great Recession.
For these [Conservative and Lib-Dem] voters, the very idea of instant
gratification is anathema, in theory if not in practice. And they
elected this government because they’ve convinced themselves they’ve had
enough of it.
Austerity, by contrast, has a deep appeal. Austerity is what made Britain great. Austerity is what won the war.
No, none of this is true. Leaving millions of people unemployed
harms the people, their families, and the national and global economy.
It is pure economic waste and a terrible social harm that devastates
families. Causing people to lose their jobs is not rational under
either a “long run” or “short run” perspective. It has nothing to do
with a desire for “instant gratification.” The typical unemployed adult
spent over 12 years developing his or her skills. They did not rely on
“instant gratification.”
Fiscal austerity is not what “won the war.” The opposite is true.
In the fiscal policy realm it was massive fiscal deficits – debt – that
won the war. Applebaum is falsely conflating household sacrifices with
fiscal austerity. Here is a thought exercise. Senior British officials
have made the absurd statement that the government is “out of money.”
If Germany invaded Britain today would the Brits surrender because they
were “out of money?” Of course not, they would run however large a
deficit was required to defend Britain from the invasion. That would
not destroy Britain’s economy. Instead, it would take Britain out of
recession and produce full employment. Self-sacrifice was important
during World War II. The U.S. and Britain used rationing. (Indeed,
Britain’s rationing continued long after the end of the war.)
Households donated silk and metal to the war effort – and their
children’s and spouses’ lives. Those sacrifices are moral issues.
Fiscal austerity by a nation with a sovereign currency is not a moral
issue. In the context of a Great Recession it is simply a
self-destructive fiscal policy. A potlatch, (rivals compete in
destroying valuable household possessions in order to gain status)
involves self-sacrifice but it is simply self-destructive as an economic
policy. Britain’s austerity was a massive potlatch in which the
parties competed in claiming moral superiority based on their zeal in
competing to destroy working class families.
The Conservatives generated a faux “moral panic” among the British.
Britain had too small a deficit, not too large a deficit, to recovery
quickly from the Great Recession. Fiscal austerity in that context was
so self-destructive that it would virtually guarantee throwing the
nation back into recession. Recessions are the primary drivers of
national debt and deficits because they cause such a dramatic fall in
revenues and greater need for services to those who lose their jobs.
Here is one of the most common errors people make about fiscal policy. A
nation suffering from a Great Recession cannot simply “decide” to end
its budget deficit. Consider why this is true. A nation can try to end
a deficit by some combination of cutting spending and raising taxes.
The problem is that in a recession private sector demand is already
grossly inadequate to employ all the people who want to work. Cutting
public sector spending (demand) while private sector demand is grossly
inadequate is an excellent way to make the recession (and budget
deficit) much worse. Raising taxes during a weak recovery from a Great
Recession will further reduce already grossly inadequate private sector
demand and cause the nation to fall back into recession (and increase
the budget deficit). Britain has a sovereign currency. Its debt is not
remotely “ruinous.” It can borrow money at incredibly low interest
rates. Fiscal stimulus in response to a Great Recession has no
“immoral” aspect and is economically desirable. The moral panic was a
lie on both moral and economic dimensions. It was lie deliberately
generated for political advantage. It has resulted in deeply immoral
policies
that harm working class families and the national economy. British
austerity represents a spectacular “own goal.” Applebaum wrote her 2010
column to deride America as lacking the moral clarity of the British
because we had failed to embrace austerity. Her prime targets for
austerity were: “Medicare, Medicaid, [and] Social Security.” It is
always the most successful, most popular government programs that
conservatives are most eager to destroy because it is those programs
that falsify their dogmas and pose their greatest political barriers in
attacking the 99%. Applebaum was eager to generate the same faux moral
panic in America and mimic Britain’s self-destructive assault on working
class families.
How would Applebaum react in her July 25, 2012 column to the
demonstration that austerity was throwing Britain and much of the
Eurozone back into recession? Would she admit that austerity had failed
economically and morally? Of course not, she was still propounding the
faux moral panic about budget deficits that was crushing European
economies and workers’ families. Indeed, she claimed that the “silver
lining” of the austerity-induced second recession was the suffering it
caused.
Another day, another set of crisis headlines — but there is a silver
lining: Finally, Europeans are being forced to face up to decades’ worth
of fundamentally dishonest politics. Since the 1970s, one government
after the next has spent, borrowed and then inflated its way out of the
subsequent debt. Then they recovered — only to spend, borrow and inflate
once again.
She reveals again her real target – she wants to destroy the social
programs that have improved the lives of the working class. She claims
that social programs are merely political bribes to induce the working
class to vote for leftist politicians. She glories in the fact that the
euro is not a sovereign currency, exposing every euro nation to what is
effectively the ability of the bond markets to veto social and fiscal
policies. She loves the fact that the bond markets hate higher working
class wages and social programs that aid working class families. She
recognizes that when nations joined the euro they surrendered a key
aspect of their economic sovereignty and that delights her.
Successive leaders in all of those countries have tried to “buy” the
electorate with elaborate pensions, state-sector employment and other
perks. Banks across the continent and around the world have greedily
facilitated them.
Now they can’t. Though no one recognized it at the time, joining the
euro was like adopting the gold standard: It meant that individual
governments couldn’t inflate their way out of trouble anymore nor pass
on to the next generation the bill for today’s expenditures — as they
still can in the United States and Britain. All along, it has been a
mistake to describe the euro zone’s difficulties as a “currency crisis.”
In fact, it’s a political crisis, caused by an addiction to debt, and
it requires a political solution. Electorates have learned the truth:
They are bankrupt. Whatever decisions the European Union now makes,
future recovery depends on how much of the plain facts ordinary people
can bear to absorb.
Never mind that inflation of general price levels (as opposed to
financial bubbles) was actually never severe in nations that had joined
the euro zone. Applebaum’s schadenfreude is unlimited. She loves the
euro zone disaster her austerity policies generated because she believes
that the disaster will destroy the social programs she despises and
bring the extreme right to power. I think she is wrong. Latin America
has elected some right wing leaders in response to the failures of the
Washington Consensus, but it has largely elected leftist leaders who ran
on promises to oppose the Washington Consensus.
The Republicans in general and Governor Romney in particular, are (at
least rhetorically) supporting extreme austerity. This is remarkable
because Romney has twice said that austerity would harm our economy.
(Representative Ryan’s fiscal plans are so vague and incoherent that
they could actually be stimulative.) Rather than run against insane
austerity policies that have proven to be economic and moral failures,
President Obama has embraced his own fiscal incoherence. He talks of
the government running out of money and being just like a household and
is one of the worst of the enablers of Simpson-Bowles’ self-destructive
austerity ideas. Simpson and Bowles, along with Peter G. Peterson are
the leading American proponents of the faux moral panic. Obama’s
repeated embrace of the faux moral panic has made it impossible for him
to make a coherent attack on Republican embrace of austerity policies
that have devastated much of
Europe.
Obama will pay a great political price for trying to be all things to
all voters on the issue of austerity. Opposing a self-destructive
economic policy, premised on lies and designed to harm popular,
successful programs created by the Democratic Party to benefit working
class families should have been Obama’s signature economic policy.
Instead, Obama tries to be in favor of stimulus and austerity. In
Europe, Geithner urges the euro zone to reject austerity. In
Washington, D.C., he urges Obama to reject stimulus. Obama chose
Simpson and Bowles even though everyone knew they would propose
austerity and cuts to Social Security. The administration is so
incoherent on these issues that no one believes that it has any economic
principles. This is not pragmatism, it is dishonesty. It is bad
economics, bad morality, and bad politics.
