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?
- 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. …
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:
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 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.
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…
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.
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).
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.
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.
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?
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.