European Austerity – What’s Actually Happening?

Are we “going the way of Greece?” Should we cut spending to head off a “debt crisis” here?
Conservatives in Europe and America say cutting back on what democracies do for their citizens is the solution to our economic troubles because it will bring economic growth that helps everyone. But this is not what’s happening where it is tried. These are not stupid people. Maybe economic growth wasn’t the goal of austerity.

What They Said Would Happen

Greece and others have been confronted by lenders demanding very high rates before they will make loans. This increases their debt payments to even more dangerous levels, so lenders demand even higher rates. Financial elites are forcing “austerity,” with Greece cutting government employees, pensions, etc. and privatizing public assets, saying this will free up more money for debt payments. Meanwhile European leaders say that austerity is needed everywhere, that cutting government spending will restore “confidence” which will get businesses investing and hiring again, which will boost economic growth.
Economists and anyone with a brain warned that the austerity approach would only make things worse. Now that many European countries have implemented austerity measures the actual results these efforts can be measured.

What Actually Happened

What the financial elites predicted is not what is happening, the cuts are making the economic situation much worse. Taking money out of the economy didn’t grow the economy! Instead of increased “business confidence” bringing about a round of investment and hiring, these countries are instead experiencing further economic slowdown. As public employees are laid off and citizens’ benefits reduced the resulting reduction in demand slows economic growth further. This reduces tax revenues. Unemployment is soaring. And the threat is that deflation will only further inflate the debt burden.
In The cruel stupidity that is economic austerity at Daily Kos this weekend, Lawrence Lewis outlined just how bad things are as a result of austerity policies,

How bad is it?

The economies of Europe are imploding, as conservative governments continue to pursue exactly the wrong policies at exactly the wrong time. …

But this is not really a surprise. It is exactly what was predicted. And now that it is clear that austerity is making things worse they are demanding more austerity as a cure.

Financial Elites Are Not Stupid

So here is the thing. Everyone can see that this is the result—the expected result—of austerity policies. And Europe’s financial elites are not stupid people—not by a long shot! Perhaps they can see the obvious, because it’s obvious, and therefore we might conclude that their campaign pushing austerity isn’t about growing the economy – it’s about something else — they have a different agenda.
When smart people are forcing something to happen we need to look at what is happening, and realize perhaps this is what they wanted to happen. Maybe economic growth wasn’t austerity’s goal at all. Maybe the results we see— the results we all knew would come from austerity—are the results they wanted.

What Else Happened?

The above-listed effect of austerity are not the only results. Forced privatization is also occurring. Here are a few examples from recent news:
European railway companies eye Greek network sale,

Three European railway companies are interested in buying all or part of Greece’s railway business, as the debt-laden country sells assets to satisfy its lenders, people familiar with the discussions told Reuters.

Greece: 14 firms formally express interest in privatization of DEPA state gas company,

Greece says 14 companies, including a subsidiary of Russian gas company Gazprom, have formally expressed initial interest in buying Greek state gas firm DEPA under the debt-crippled country’s mammoth privatization program.

Greece seeks Israeli buyers for ports, companies, roads,

As part of austerity measures, Greek government looking to sell stakes in major companies, development projects; head of privatization agency says Israeli investors already expressed interest…

In Greek Debt Crisis, Government Puts its Policemen Up For Rent,

With the economic crisis plaguing the country, drastic means have been taken to replenish the public coffers. It is in this context that the Greek government has adopted a measure allowing the use, for a fee, of the National Police and its equipment for private needs.
While the Ministry of Citizen Protection (in charge of the country’s security services) said the move will help to “pay for the cost of using police material and infrastructure, and allow modernizing them,” the average citizen’s security is being seriously compromised and it raises the question of how far Greece is ready to go to cut state funding.

Greece Opens Bidding For Rhodes Property,

ATHENS — Greece invited bids for property in the popular tourist destination of Afantou in Rhodes Tuesday, as part of a long-awaited privatization program to raise EUR19 billion by 2015 in aid of its huge debt crisis.
This is the fourth international real estate tender launched by the Greek government-established Hellenic Republic Asset Development Fund (HRADF).

Strong Investor Interest In Planned Sale Of Former Athens Airport Area

The country’s privatization agency said Tuesday there was strong investor interest in the planned sale of the former Athens airport area, marking the latest step in the country’s efforts to raise some EUR19 billion from the sale of state assets by 2015.

Privatization is happening. Greece is being forced to sell off public assets as a condition of getting help with its debt.
Question: If these assets are contributing to Greece’s debt problem, why would investors want to buy them? If these assets are bringing revenue that could help cover the debt, why would the financial elites want Greece to sell them? Unless forcing Greece to sell them was the point.

Shock Doctrine

Naomi Klein’s book The Shock Doctrine makes the case that financial elites have been following a strategy where they take advantage of crises and the resulting panic (and sometimes they make the crisis happen and whip up panic.) Crisis and panic set up chaotic environments in which it is easy to swoop in with pre-packaged “solutions” and take all the stuff. We see this shock-doctrine cycle over and over again: crisis, panic, panic accelerates, financial elites swoop in and take all the stuff. (America had its own experience recently of a crisis that generated terrible panic, with financial elites then swooping in and taking all the stuff. )
Debt often leads to such a a crisis. The book Confessions of Economic Hit Man exposed the strategy of convincing the leadership of underdeveloped countries to take on high debt. Then when it becomes difficult to carry the debt, financial elites swoop in and take all the stuff.

America’s Debt

In the United States our own financial elite are demanding “spending cuts” and other austerity measures as well — even though we can see in front of our faces what resulted from European austerity policies. Conservatives try to whip up panic, claiming our national debt will force the country into bankruptcy (and tried to prove it by nearly forcing the country into bankruptcy last year.) After forcing tax cuts for the rich, again and again, they now say we have to “cut spending” (but not spending on oil company subsidies or military — estimated upwards of $1 trillion this year.) They demand austerity — cuts in spending on things democracy does for its citizens.
But remember, at the end of the Clinton presidency the United States was paying off its debt. Federal Reserve Chair Alan Greenspan greenlighted the Bush tax cuts, saying that Clinton was paying down the country’s debt too fast! When the surplus vanished President George ‘W’ Bush said that a return to deficits was “incredibly positive news” because it would lead to a debt crisis that would force cutbacks in government.
The cycle repeats, supposed crisis, panic is whipped up, elites offer their “solution”, then swoop in and take all the stuff. Will we fall for it again?
See Also
In The Zombie Rises: The Return of Simpson Bowles CAF’s Bob Borosage writes,

After experiencing the horrors of this misguided policy, European leaders will eventually turn back to trying to get their economies moving again. What we need this fall is a different grand bargain—a global agreement, like that that was forged in early 2009, for coordinated action by governments to reflate the economy —to borrow and spend to put people back to work.
For this to occur, the bipartisan elite fixation about inflicting austerity now must be challenged. If we are to avoid a lost decade or worse, we need action to support still weak and staggering economies. Global coordination would be the best way to achieve that. That requires putting a stake in Simpson-Bowles, the Boehner-Obama grand bargain and other zombies.

In America will not go the way of Europe at the Washington Post, Ezra Klein says Greece’s problem is that lenders believe the government might actually default, which the US can’t do.
In Ezra Klein: Barking Up The Wrong Tree Borosage responds that Greece’s austerity is the problem—such cuts make economies worse. Jobs are the answer to deficits.
This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
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“Government Doesn’t Have The Resources To Stop It”

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF.
People want the President to exert leadership to turn things around.
The oil leak. Unemployment. Credit card scams. Foreclosures. Predatory corporations. Environmental destruction. Global warming. Roads and bridges crumbling. Incomes stagnant. Schools getting worse. Companies moving overseas. Problem after problem.
People want to know, “Why doesn’t the government push BP aside and take over?” The answer is, “Government doesn’t have the resources to stop it.”
People want to know why the government can’t do more to help unemployed people, help with health care, help provide good educations, help with college, maintain the infrastructure, and all the other things that government does.
The answer, these days, is always, “Government doesn’t have the resources.” And that, in a nutshell, was exactly the plan.
We, the People no longer have the resources to solve our problems. We now must depend on and defer to the corporations and the wealthy few to make the important decisions and get things done instead of being able to decide and do on our own.
This is the legacy of 30 years of conservatism. They called it “starving the beast.” Reagan called it “cutting their allowance.” President Bush, told that his policies had turned the country back to massive deficits, said this was, “Incredibly positive news” because it will create “a fiscal straitjacket for Congress.” He came into office with a $236 billion surplus. His last budget left us with a $1.4 trillion deficit. “Incredibly positive news.”
They disemboweled the regulatory agencies. They “privatized” government functions and resources, letting a well-connected few profit at the expense of the rest of us.
The Reagan deficit plan was right there for everyone to see:

    Step 1: Cut taxes to “cut the allowance” of government so that it can’t function on the side of We, the People. Intentionally force the government into greater and greater debt.
    Step 2: Use the debt as a reason to cut the things government does for We, the People. When the resulting deficits pile up scare people that the government is “going bankrupt” so they’ll let you sell off the people’s assets and “privatize” the functions of government. Of course, insist that putting taxes back where they were will “harm the economy.”
    Step 3: Blame liberals for the disastrous effects of spending cutbacks.

And here we are. Every time you hear someone say that we have to fight the deficit instead of getting things done that We, the People need done you are witnessing The Plan in action.
And now, government doesn’t have the resources to stop it.
NOTE: Part of the America’s Future Now conference in Washington D.C. from June 7-9 will be devoted to strategy on how the progressive movement can fight the deficit cutters. Speakers such as Van Jones, House Speaker Nancy Pelosi, Howard Dean, AFL CIO President Richard Trumka, Arianna Huffington will offer a build vision for how the progressive movement can rebuild America’s economy and put people back to work. Click here to attend.