Austerity is Europe's mutual suicide-pact

Laurence Lewis's Daily Kos editorial, "The cruel stupidity that is economic austerity," is a blazing indictment of austerity as a means of recovering from recession, and it cites experts and statistics showing that austerity programs (in Europe, particularly) are deepening the recession, destroying lives, and demolishing vital social institutions that are especially needed in economic downturns. Lewis's citations are not to the usual suspects in the fight against austerity, but rather to rock-ribbed conservatives and publications like The Economist, the chief economist of Standard Chartered, the IMF, the World Bank and the WTO. And there's Joseph Stiglitz, who compares austerity to medieval blood-letting: "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."

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.

The cruel stupidity that is economic austerity (via Making Light)

(Image: GREEKS PROTEST AUSTERITY CUTS, a Creative Commons Attribution (2.0) image from piazzadelpopolo's photostream)


  1. The point of austerity is NOT to fix the economy of these countries in the short term (i.e. the next 5 years). The point of austerity is to create a long-term fix.  
    Unfortunately, there has been a world wide economic bubble propped up by large amounts of government spending.  The bubble was going to burst, the question is: will it be a short, severe downturn that resets the economies to realistic levels, or will it be a protracted, drawn out strangulation.  You can argue about which is preferable, but lets not imply that austerity is supposed to magically make the debt go away overnight and deliver angel food cake to all the world’s hungry.

    1. You hold up a disingenuous straw man argument. There are many alternative approaches to austerity policies in place across Europe – it’s not an either-or proposition.

      The argument against austerity, however, typically suggests that such policies alone actually exacerbate the very ailments they purport to cure. Your comment does not address that argument at all.

      1. I agree that austerity “exacerbates the ailment” in the short term.
        Its kind of like a drug addict hitting rock bottom, is it better to get them there quickly so we can start to fix the systemic problems, or let them languish in addiction for years until it finally happens?
        Personally, I prefer the former (at least as it applies to national economies).

        I would welcome your alternative proposals (specifics please), but let us agree at least that at some point these governments are going to have to borrow less money (and therefore spend less)

        1.  The key is that during economic contraction the government should spend. Under good times, ease back spending. Politicians never do the second thing. If we are electing officials who can’t ease the accelerator during economic upswings, then we are not doing our civic duty. However, the current moment is not one to pare budgets drastically, no matter how frightened of spending we are. The money will come from somewhere, if politicians cut spending at a constant but light pace during boom times. That is what is meant as saving for a rainy day fund. People do it with their personal budgets and government can do the same.

          1. In fairness, most populations would not tolerate paying taxes to establish a trillion dollar “rainy day fund” and it is more or less impossible politically to raise taxes during a recession, so there is no good way for states to calibrate their spending as you suggest. It would be nice if they could.

          2. You know that this is practically the first economics lesson in the Bible?! Joseph advised Pharaoh that it was during the good times he should be storing up the grain, because it won’t be there in the bad times. And there will always be bad times.
            It’s common sense but then again when did government and common sense go together?

          3. This is true, and is recommended best practice in my book.  But we (the global society) did not do this.  For an example of a nation that is doing this well look at China (not that I agree with their other policies)

          4. @Scurra And then Joseph sold the food back to the impoverished people, who literally needed to sell their land and themselves as slaves to the Pharaoh in order to survive. Yep, we should do that one.

          5. Oh Disqus reply limit, why ya gotta be so limity?

            ChicagoD, people pay interest on borrowing trillions of dollars that we haven’t produced yet, forcing them to work to produce the value to repay the funds. Honestly, what’s the difference here?

        2. Yes, Riley, you are definitely addressing a wider, meta-range of the problem,  not that single “argument against austerity”. There could be millions of arguments against “inhumanly uncomfortable actions” of the crew of a drowning  ship,  badly aligned chairs on its decks,  some people hurt, yet the fact the ship’s drowning does demand to save lives of as many as possible, without wining about someones’ injuries or discomfort. 

        3. Its kind of like a drug addict hitting rock bottom…

          Except it’s not like that at all, but thanks for bringing generic libertarian talking points into this thread.

    2. The primary goal of austerity measures seem to be to protect influential citizens from having to make sacrifices at all.

      Slashing government services, attacking unions, driving down wages, militarizing society and ignoring climate change – this is austerity. It’s a direct attack on our children and grandchildren.

      1. You do realize that money has to come from somewhere right? You can’t just create it out of nothing.  
        Oh wait…

        1. The point, I think, is the question of where the money comes from. “Austerity” denotes a general scaling back of expenditure, but, I think the argument goes, it is actually a euphemism for slashing social services and other things that predominantly affect the poor and middle class, while leaving the wealthy more or less unaffected.

          Take, as an example, a point made by Jon Stewart just last night. When Planned Parenthood was the topic of the day, its 300 million dollar annual budget was held up as a huge amount. AUSTERITY! Those same legislators refer to a change in the tax code that would affect millionaires and raise about 4.7 billion dollars a year, as just a pittance (relative to the government’s overall debt), and not worth considering.

          1. Don’t we favor democracy because we feel that it’s dangerous to trust the character of hereditary autocrats? Shouldn’t our economic systems have the same safeguards as our political systems?

          2. I beg to differ. It is, in fact, the heart of the matter. Rich people do not feel connected to their fellow man, rich people do not feel any sense of obligation to contribute to the societies that made their success possible. Rich people feel they are entitled to be free from any responsibility to their fellow humans.

            Rich people tend to be psychopaths, who would happily lock themselves away in estates, counting their money while the world burns down around them.

        2.  Yeah, oh wait, that is exactly how money is made, its a human construct.

          On the other hand, wealth and things of value come from large scale human collaboration, industry, education, government, etc.   

        3. Yes money has to come from somewhere, like through the exchanges of goods produced and services provided. You know, jobs. 

          Rising unemployment means less people earning, which means less people spending. Less people spending means further reductions in less people earning. It’s all a downward spiral with austerity during times of depression.

          Australia, has by many economists been looked at from abroad as the country that best handled the GFC (our Treasurer was named Treasurer of the Year by Euromoney magazine). It had a stimulus package that was pretty damn simple. Instead of handing huge corporations massive handouts it handed each and every person that had filed a tax return or received a welfare or pension payment the year before $900.

          At the time it was blasted as wasteful by every right wing politician in the country. However one thing happened very quickly. The retail sector went berserk. Job losses that had started, quickly stopped and even started to reverse in some places. The economy, in short, kept ticking. 

          There were other initiatives, huge, expensive infrastructure projects. The sorts slammed for their waste (of which some are indeed stupidly expensive that could have been done a lot cheaper, enabling other infrastructure to also get built) however, the expense of the projects means more money in the hands of those building them. A lot of labourers earned good money. Money that was spent. Money that was taxed. Money that has helped the economy grow.

          Now Australia’s budgets are about to return to a surplus. That means debt will start going down. Unfortunately the surplus has resulted in a lot of austerity. As a result the economy is slowing again. The problem of course isn’t that we’ve started cutting spending. It’s that we’ve cut spending too soon, and too much.

    3. How about, ending the casino that brought about the bubbles in the first place? You know, like returning some of the wealth to the working class so that increasing aggregate demand can replace speculative capital as the source of economic growth. Until you do that, you’re going to get bubbles, especially if you relax the rules governing financial structure – and I’m talking about the simple rules, like “don’t mix investment and commercial banking money.” Austerity is merely squeezing the dry sponge of the working class – you’re not going to get any money out of them, and you’re not going to solve the fundamental problem – the gamblers have got the government held captive, and they can always count on us to bail them out when their bubbles pop. Austerity won’t end that – outlawing gambling will.

    4. Unfortunately, there has been a world wide economic bubble propped up by large amounts of government spending.

      You have a profound misunderstanding of what caused the economic crisis.

        1. Sadly a larger portion of the voting population thinks Navin is right without further study of the core issues. 

          I agree that there are corporate entities in this country that will take advantage where they can.  However it is often with the cooperation of government entities that they derive these special benefits. 

          I think the best description of our nation’s economic and government model should be called “Corporatism” or “Crony capitalism”.  

          It’s a good ol’ boys club that takes care of itself.  On that point I think we agree. 

          It’s just on the solution that we differ to some extent.   My guess is Navin believes in the goodness and benevolence of Government Intervention and I believe in the bloody invisible hand…with government there to protect private property rights and contracts. 

          1. My guess is Navin believes in the goodness and benevolence of Government Intervention

            It would be nice if you could explain what’s wrong with the government-interventionist stance without resorting to cartoonish caricature. One need not believe anything about the benevolent motivations of politicians or their moral virtuousness to believe that Keynes was basically correct, and that in a strictly utilitarian sense government intervention in the economy are good for countering depressions (look at this bit of evidence for example, or the fact that since the recent downturn, countries which made use of stimulus pretty consistently had better recoveries than those which went for austerity) and also for producing better average living standards (look at all the graphs towards the end of this article).

          2. @hypnosifl:disqus   Here is the trouble with Keynes. 

            Government encouraged the overspending that led to the bubble.  When the bubble popped we had a contraction in the economy.  So what does Keynes prescribe?  Why more spending/lending of course.  

            Let’s pay off Credit Card A with Credit Card B. 

            Overspending/mad expansion/misallocation of capital  of credit was the cause of the bubble and Keynesians want to fix it with more spending (stimulus, quantitative easing).  

            Overspending brought on by government policies, lax lending standards initiated by congressional fiat/bills/laws/coercion, the Creation of Fannie/Freddie long ago by Congress (which morphed into a quasi private institution with the basic guarantee that if it were to fail – the Federal Government, i.e. the taxpayers, would be there to foot the bill). 

            Much of this could have been avoided if many of these Government Created entities were never created in the first place. 

            IF congress had never created FnF – they never would have been around to over-confidently purchase 75% of the bullshit mortgage backed securities. 

            IF congress had never repealed Glass-Steagal we wouldn’t have seen the bubble get as out fo control. 

            IF Congress had never created the quasi private national central bank (THe Fed) we never would have seen the housing bubble.  

            IF the SEC was never created would people have such a strong false sense of security as the “watchdogs” are watching? 

      1. Not again Navin.  Please enlighten us with your wisdom on what causes the financial crisis of ’08.  

        Do not forget to include Fannie/Freddie (both government constructs), Government Encouraged funding for low income earners to buy homes, The Federal Reserve system which pumped massive amounts of easy credit into the system at artificially low interest rates. 

        This is NOT meant to discount the role that Wall Street and Bankers played in the financial credit/housing bubble Crisis.  They share a great deal of the blame but they are not the root cause – they were symptoms of a system set in motion by government beauracrats trying to make something cheap – again. 

        Just look at the good intentions of government whenever they try to get into the market and make something cheap – they almost always have the opposite effect: 

        Housing – Bubble – prices skyrocket. Malinvestment into “investment properties”. Bubble pops fairly quickly. Govt still trying to prop up home prices at artificially high levels with all kinds of bank bailouts various programs and the Fed keeps the interest rates at record low rates.  Housing prices still need to come down in some areas/markets.College Tuition – Govt’ backed student loans – tuition grows 3x faster than rate of inflation at Private and Public universities.  Malinvestment happening now as the labor market is so soft – people seek shelter in further education regardless of high price. Crash pending. Healthcare – Medicaid/care – Since government involvement began health care costs are rising extremely fast.  So much wrong with this but if the Federal Government would only get out of the way and free up the market: 1. Allow portability of insurance – it should not be tied to an employer. 2. Allow health care providers to compete across state lines. 3. Not force people to buy certain insurance policies they don’t need.  4. People need ala carte style services where they can see prices and services rendered.  This is how every other service works and does so very successfully.  Unfortunately emotional and do-gooders will get involved and try to set prices.  Price Controls nearly always cause shortages – you mix low supply with high demand…well the price can’t be controlled for too much longer and it begins to climb. Fast. 

        Anyway Navin I know you think that the economic crisis is entirely to blame on the private sector.  This type of thinking completely ignores the facts that Govt Involvement and manipulation of the markets are the key – Government creates the source of the problem.  Then the market reacts in an unusual manner (but not an unpredictable manner).   IF The govt had simply never tried to force cheap housing, cheap tuition, cheap healthcare pricing for these goods/services would likely never have climbed as rapidly as they did.  Manipulation always causes some sort of distortion.  It’s hard for government busy bodies to see the long term effects of their actions much less the unforeseen consequences. 

        1. “If I had more time, I would have written a shorter letter.” – TS Eliot

          (yes, that’s a classy way of saying “tldr”)

        2. This is a load of horseshit. Fanny and Freddie didn’t make up these financial instruments. They didn’t sell people packages of shit masquerading as triple-A securities and then bet against them. They were just more eager dupes with a pocket full of cash when Goldman Sachs and their ilk came to their door to sell their trash.

          1. You are correct FnF did not create them. However FnF held nearly 75% of the horseshit.  They chose to buy the horseshit.  Had those entities never been created by the Federal Government and never been given the idea they would get bailed out by taxpayers the housing crisis could have been much smaller in the USA.  

            FnF are currently getting billions (around $160 billion last I checked) from taxpayers to bail them out.  They should have been allowed to fail and go bankrupt. 

            Also you fail to recall that Government pushed the idea of “Affordable Housing” through various legislation/bills that practically forced/coerced Lenders to go after lower income people with less than stellar credit.    

            You also forget to acknowledge that the Federal Reserve (a quasi private central government bank) was controlling interest rates.  They were WAY TOO LOW for TOO LONG.   Low rats made Credit/money CHEAP and affordable.  Seriously just go to and play around with their loan calculators.  Try plugging in rates at 3-5% on a $250,000 home.  Then do the same with rates around 8-10%.
            at 4% on $250k the monthly payment is $1193
            at 8% on $250k the monthly payment is $1834
            at 10% on $250 the monthly payment is $2193As the interest rate goes up – it’s more expensive to borrow money/credit and vice-versa. 
            This is why interest rates were a HUGE factor as low interest rates makes credit/money cheap to borrow. 
            For more reasons on why the Fed deserves much of the blame: 

  2. Read an interesting stat a month or so ago.

    Now the reality isn’t quite as simple as this quip would lead one to believe, however it is still an indication of how awful Europe’s policy has been.

    Europe has now spent more on its multiple half-hearted rescue packages for Greece than the entire Greek debt at the beginning of the crisis.

    1.  It may be difficult to prove as I recall reading that the Greek official figures have been massaged for many a year to ensure they stayed within the EU guidelines

      1. I think there is a claim that a certain big US bank helped make Greece look good so they could join the Euro zone.

    2. What do propose? Bailing out every country that crashes its economy? Or throwing Greece out of the EU? I don’t like either. It is a mess.

      1. The Greek economy crashed for the exact same reason that the American economy crashed, they just didn’t have the money to prop their finances back up like the American government did. So, yeah, the correct response to that happening (that is, a huge hole suddenly appearing in the balance sheets of your financial institutions) is to suck the population dry, right?

        Here’s a question for you: what’s wrong with bailing out Greece? Because they didn’t have as much money as the Germans when shit went south, now they have to eat dirt?

        1. No, I think Ireland was more like the U.S. I think Greece was lying about what they were spending and what their tax revenues were and fundamentally had a crisis of government spending. That is not the issue the U.S. government had at all.

          1. Funny, then, that their crisis of government spending suddenly came to light at the same moment that trillions of dollars of capital suddenly evanesced from the global economy. Surely THAT had nothing to do with Greece’s problems!

          2. The concealed gun in all this is the “beggar thy neighbor” policy that Germany have been leading for decades. German wages have been frozen, leading to German exports being cheaper than domestic production where wages have been allowed to keep rising.

          3. @faplap:disqus  The crisis in government spending, which necessitated government borrowing, came to a head when the bond markets seized. No doubt about that. Still, Greece was vulnerable to that seizure in a way Germany was not because the Greeks had a crisis on government spending.
            Greek productivity, coupled with benefits that exceeded, in many cases, the benefits in other productive, socially conscious countries (i.e. not the U.S.) were a recipe for this very disaster. The rest was a matter of timing.

          4. @turn_self_off:disqus  But Germany’s policies are not what caused the Greek problem. Greece has not and will not make most of the products the Germans export. Cheap German exports are likely a net benefit to the Greeks, since it kept prices for those goods lower. Other countries might have an issue with Germany, but not Greece.

        2. I’m not sure Greece and America can be compared. The main reason that Greece is technically broke is that its economy is dysfunctional. At least that is what I’m told. So what’s the point in bailing Greece out? What makes you believe that debts won’t pile up in no time again?

          In addition you will send each staggering economy the message that they will be bailed out no matter what. And Germany’s pockets are not that deep.

          1. Size of German economy (GDP): $3,577,031 million. Size of Greek economy: $303,065 million. The EU as a whole is $17.5 trillion. Greece’s debt is not that much worse as a % of GDP than the rest of the EU; it could easily be swallowed up and bailed out without more than a modest bump in the value of the euro. This is the exact same thing that is happening in the US – gamblers crash the economy, then they throw a shit fit about how we’re spending so much money on poor people, take their money away how dare they.

          2. I’m going to guess that the point has something to do with a transfer of the country’s assets to some elite business people.  This is probably why all the neoliberals are scared at the thought of them pulling an Argentina.

          3. Greek 10yr bonds are selling for about 20 cents on the dollar. (And that is not far off from the average maturity last time I checked.) If the market in Greek bonds were frozen and all the bonds bought back at the current market rate, financed with an 80B euro 5-year ECB loan at the rates the ECB gives to banks, there would be no problem. The Greeks could pay off all the debt within about 5 years while still increasing social spending.

            With about 2/3 of the Greek debt already held by the ECB, the problem could be solved by them alone without any default, pushing the repayment schedule out to around 8 years. The Greek debt crisis is entirely manufactured.

            What has wrecked the Greek budget is insane interest rates, not overspending. Austerity does nothing more than wreck the tax base and worsen the problem.

          1. Well . . . wait. The reason the Greeks had to lie about their numbers was that the Germans (and the Euros) were conscious enough to have imposed rules against this kind of thing.

          2. You’re right, I should have been clearer to say that the German economy benefited more from the Greeks than the other way around.

    3. It’s a bit like doling out aspirin to manage a fever rather than just paying for the damn course of antibiotics and getting it over with.

  3. The point of Austerity is to force the people not responsible for gov spending and immoral financial practices to pay for the bubble bursting so that the Banksters and; their partners in crime, Politicians can continue on as normal.

    Rise up and cut a few heads off – you could start with Cameron Lizardman (an unfortunate hideous growth that speaks but no head), but you’ll require a deal of luck to find one on his shoulders. Nope it won’t fix shite – violence never has, but it might make the next round of wannabe Politicos revisit the actual reason for their existence…serving the populous as a whole rather than a few public school arseheads.

  4. Austerity isn’t stupid. Nations spending beyond their means is stupid. Here in the US, our President has borrowed over $5 trillion in just three years!! Now, that’s stupid!
    Where were all these so called experts like Laurence Lewis when these nation’s were spending themselves into hopeless debt? Let me guess, he LOVED all the spending because he thought it would be a great stimulus. How’s that workin’ out for ya?

    1.  “How’s that workin’ out for ya?”

      Great, actually.  My business is up, profits are up, vacancy down, my house that had been on the market for 2.5 years sold, my neighborhood is nice and safe, I finally have health insurance, the economy is doing well and the unemployment rates are down, house values are increasing for the first time in 4-5 years, new and used car sales are booming… Oh wait, that doesn’t fit your narrative.

    2. I guess you’d better cut taxes some more, and then increase military spending, build more prisons, make your for-profit healthcare system even more inefficient and expensive, and then cut any program that helps the poor. Will that fix the problem? Because that’s austerity! Or is that right-wing freemarketeering? I get those two confused.

        1.  Not quite, in feudalism the aristocracy had some sort of social responsibility for everyone else. Those social relations have totally replaced with no other connection but “cash payment”.

          So austerity is better said as socialism for the rich, capitalism for everyone else.

    3. The US President was left two unfunded wars, a failing economy, mammoth unfunded tax breaks, and a healthcare system with skyrocketing costs.  Perhaps those are the stupid things we should be fixing?… just kidding! teachers make too much money and the poor and mentally ill shouldn’t get any assistance because that’s what for profit prisons are for!

    4. If you think that the point of austerity is a general, across-the-board, reduction in spending, you aren’t paying attention. 
       If you take the term “austerity” at its dictionary definition, you’re totally missing the point. Pay careful attention to who is really feeling the pinch, and you will see why people are upset.

      1.  All these replies and not a single mention of what were all these “experts” doing when these  nations (including the US) piled up massive amounts of debt.  Austerity isn’t the problem. Debt and living beyond one’s means is the problem.

        1. Debt and living beyond one’s means is the problem.

          Brilliant analysis. It really doesn’t go any deeper than this. :-)

          I’m the first to agree that governments have to change their ways, but this goddamn “punish-the-poor” and “drill-baby-drill” mentality is definitely pushing us in the wrong direction.

          1. Personally it’s pushing me to the damned edge of sanity and civility. Something is going to give and things are going to change, by force or otherwise.

        2. Meh. I would say the “markets” were the problem, since the “market” loaned those countries all that money (i.e. bought bonds). You don’t want to regulate the markets, do you?!? The horror. The horror.

        3. Where by “living beyond one’s means” you mean “cutting taxes to defund government” and “bailing out the corrupt financial sector after they removed trillions of dollars in value from the economy through their criminal malfeasance”. And also, “spend trillions of dollars on unnecessary wars”, right? Right? Those were the kinds of things you were talking about, right?

        4. Here’s Paul Krugman calling it 5 years before the actual crisis:

          There is now a huge structural gap — that is, a gap that won’t go away even if the economy recovers — between U.S. spending and revenue. For the time being, borrowing can fill that gap. But eventually there must be either a large tax increase or major cuts in popular programs. If our political system can’t bring itself to choose one alternative or the other — and so far the commander in chief refuses even to admit that we have a problem — we will eventually face a nasty financial crisis.

          The crisis won’t come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.

          But at a certain point we’ll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.

          What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government’s access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

          I know: it all sounds unbelievable. But would you have believed, three years ago, that the U.S. budget would plunge so quickly from a record surplus to a record deficit? And would you have believed that, confronted with that plunge, our leaders would offer excuses rather than solutions?

          So is America safe, despite its scary numbers?

          1. i’m a big fan of krugman but let it be noted that the prediction of “what will it look like” quoted above is way, way off what we got. the dollar did not fall substantially, interest rates went way down, government borrowingwas not curtailed, there has been no cash crisis.

          2. @PaulDavisTheFirst:disqus Well that all depends on who you compare it to. If you’re comparing it to the Euro or the Pound then no shit, but they both fell too. The Australian dollar on the other hand went from about $0.80 or so to $1.10 in 2010. That’s a big drop for the US.

          3.  Interest rates  have been held down by the Fed conducting semi-secret open-market actions in Treasury futures. If that gets away from them and interest rates return to historic norms, then as debt is refinanced at the new rates, interest expenses would quickly consume most of total federal spending. If interest rates went to 25-year highs, which is not unlikely, interest payments would consume the entire federal budget, and then some.

        5.  I’ll also add that progressives who were skeptical of the housing boom/debt economy were ridiculed by the conservative media as “doomsayers”. 

    5. Nations spending beyond their means when the economy is strong is stupid. When the economy is failing, unemployment is skyrocketing and nobody has any money to pay for goods/services/taxes then exactly what governments should be doing is spending beyond their means. However spending needs to be vaguely smart. 

      Handing it to billionaires to haul away = Very, very stupid.
      Handing it to the poor so they can spend it on living = Smart.

      Obama*’s biggest bailout mistake wasn’t that he handed out money in the hopes of starving off the lending crises, his mistake was who he handed it to. If he’d handed it to the poor that weren’t able to make their mortgage payments then most of them would have been able to make their mortgage payments. They also would have bought food, spent a bit of money on goods and services, created jobs! Instead he handed it to the banks themselves so they would “keep lending”. Except the banks knew people had no money make repayments, so instead of continuing to lend they paid out huge cheques to their executives and stuffed their coffers temporarily.

      *By Obama I actually mean the mess that is the US political system.

  5. …and it cites experts and statistics showing that austerity programs (in Europe, particularly) are deepening the recession, destroying lives, and demolishing vital social institutions that are especially needed in economic downturns.

    It mat be possible that austerity isn’t the correct approach at this time for propping up the failing world economies — I’m not an economics expert, so I can’t really evaluate the claims in any depth — but it seems to me that the real problem, the real thing that is destroying lives and demolishing social institutions, are the underlying economic models themselves. All current models have at their base (and require for health) expanded growth, permanently and for ever. The only way that can happen is for more of the raw stuff of our lives — from our social connections to our “underdeveloped” natural resources — to be monetized and converted into economic transactions.

    This cannot go on forever. It is a mathematical certainty. Who here even wants everything in the world, all of their time and relationships, etc. converted to money?

  6. That’s a whole bunch of bullshit.  This debate has been on-going, and then you post an article like this for everyone to read?  It’s propagating false knowledge.  All we know is that deficit spending got us here, and surplus saving is what is going to get us out (or hyper-inflating currency by monetizing the debt (riots are fun)).

    1.  Really huh.  Oh that’s right, I forgot that Celtic Tigers were created by “government spending”…….

  7. I would actually like to see someone present a reasonable alternative for Greece, in particular. My understanding is that the Greek issue is different from the Irish issue. The Irish got caught in a couple of bubbles (tech and real estate) and are working through those. The Greek issue was essentially a government just shoveling money the government didn’t have to the people. My understanding is that Greece needs to calibrate its benefits to its revenues. How else should they do that?

    And I really would like to know. We went through similar debates at the state level in the U.S. and in some states it has been enormously painful.

    1. Much like the U.S. they have a wealthy class that pays almost no taxes.  And I don’t just mean the 1 percenters, I mean iirc, reading something about 2/3 of their doctors lying about their incomes so they wouldn’t have to pay. And nothing was done about it, a culture of tax avoidance.

      Goldman Sachs cooked the Greek books for them as well, but we’ll never see them being called on the carpet for it.

      1. My understanding of Greece is that nobody pays their taxes. Not just doctors etc., but nobody. They made up for it by being able to retire at 59 with public pensions. I think. I don’t want to do the research right now, but I am pretty sure I remember that.

        A bad, bad situation to be sure.

        1.  So they should fix that.  Just shutting down social services at a time when lots of people need social services, invites a lord of the flies senario.

          1. If tax dodging is as institutionalized as I have heard reported the effect would still be terrible. I think Greece is in a terrible pickle.

        2. Greece has a fairly young government, and a history of bad governments – I think the apparent generosity was payback for years of miserable repression. But that didn’t mean citizens automatically trusted the state, perhaps that’s why tax evasion was common (speculation)?

          I feel bad for the Greek people. I love Greeks, but turn on the news and all you hear is how lazy and corrupt they all are. That can’t be helping their country either.

        1. Gee, the difference between 1% and 50% is called a lot of people. I’d like to see your stat broken out by income strata. I bet that families making between $100,000 and $350,000 pay a greater proportion of taxes than families making over $1,000,000. Wanna bet?

          1.  You can Google around for the answer or accept this figure:

            “The top 1 percent of taxpayers paid 33.7 percent of all individual income taxes in 2002.”

          2. @google-81d376284411667f9415b04a019083f3:disqus  So, 49% of people (top 50% minus top 1%) pay 66.3% of income taxes? To the extent that your post was intended to refute Navin’s 1% rhetoric, I’m not sure this argument is particularly helpful to you.

          3. I successfully refuted his statement “Much like the U.S. they have a wealthy class that pays almost no taxes.”
            I have no information about wealthy Greeks.

          4. @google-81d376284411667f9415b04a019083f3:disqus  To successfully refute the “almost no taxes” narrative you’d have to include the income for the people in question. 33% of all income taxes sound impressive unless their income is . . . more than 33% of the income. Take one more shot at it.

          5.  Here’s my shot, ChicagoD.

            The issue was, do the very wealthy (in the U.S.) pay taxes? Yes, they do. In amounts that dwarf what the poor and middle class contribute. Money that goes to support the government and service the national debt.

            Whether they have a lot of money left over is another matter.

          6. @google-81d376284411667f9415b04a019083f3:disqus OK. So, the top 1% of earners averages about $1,000,000 in income per year. The top 0.01% average about $24M in income per year. Together they control roughly 66% of wealth in the U.S. And they pay taxes equaling about 33% of income taxes paid. Relative to their ownership stake in society they pay very low taxes. In absolute dollar terms they pay a lot. Which one should a society care about?

          7.  What society cares about could be a good question. The problem at hand is governments running out of those actual dollars.

            States have to squeeze a larger percentage of taxes out of people or control spending. As there is a hard limit to the percentage game they may eventually have to tighten the  budget.

          8. @VicqRuiz:disqus Wait, we have to resolve the whole issue in one fiscal year? It seems to me that the debt would be the bigger concern than a specific year’s deficit.
            In any case, I am not arguing that there is no place for cutting expenditures. I am arguing that taxes are not currently collected in what I regard as an equitable way. 

          9. I guess VicRuiz deleted his comment, but anyway:  Well said Chicago D. 

            Vic, I’ll also add that I wouldn’t leave the sacred “middle class” alone either.  Much of the time the middle class we’re talking about aren’t “middle class” at all, but actually comfortable/wealthy.

          10. @VicqRuiz:disqus , Chicago has already said it, but the US economy won’t be fixed in a year. Trying to would be incredibly impossible.

            Also you call $75,000-$500,000 middle class? I mean perhaps the $75,000 end is middle class but anyone earning over say $200,000 per year in my books is certainly upper class. Maybe not uber-rich but certainly capable of paying more taxes and not receiving any handouts*.

            *just for the record I don’t consider a public health system as a handout, I consider that a right.

          11. The proper comparison needs to count all taxes, not just federal income taxes, and the percentage needs to be of disposable income after paying the minimal amounts needed to eat and sleep indoors. Counting in sales, excise, payroll, state and federal taxes and allowing $8K  per year for buying food and shelter, every increasing income category pays a lower percentage of their disposable income than the lower-paid ones,  until it bottoms out at 41% for the $100K -$200K category. From there it rises to 45% for the $1M-$1.5M category,  then declines slightly up to the $10M+ category, which pays 42%.

            By comparison, full time minimum-wage workers in the $15K-$17K category pay 76% of their disposable income in taxes, and middle-class workers in the $40K-50K category pay 48%.

            (2008 IRS figures, Added: 12.4% SS to $100K, 2.9%Medicare, 10% state taxes (incl. sales, etc.) to 100K, 5% on portion above $100K .  Estimates of total extra taxes may be off by about 3% either way.)

        2.  The wealthy in the U.S. are paying historically low levels of taxes, as I’m sure you very well know.

          1. Do the historically low rates account for real inflation over the same period?  Government typically likes to hide real inflation rates by not including some key goods in the basket of consumer items: housing, food, gas, energy…I think that covers what the govt likes to leave out of the basket of goods. 

            I better go double check.  O_o

        3.  “The top 1 percent of taxpayers paid 33.7 percent of all individual income taxes in 2002.”

          A classic right wing cliche/diversion that doesn’t reflect actual tax burden. 

          1. The issue here seems to be States running out of money. If it’s cash they need, relative tax burden is irrelevant.
            Of course, what government needs is to stick to a budget.

          2. Well actually relative tax burden is highly relevant. 

            If you squeeze money from the poor they have less to spend on the sorts of things that keeps the economy afloat. You squeeze the rich they have less sitting in their banks, and slightly less to spend on the sorts of things that make stuff all difference to the US economy.

            You think $500,000 on a Ferrari has the same impact on the over all economy as 20 people spending $25,000 on new cars? Same amount spent, but type of spending has much larger flow on effects.

          3. “It’s not relevant to the revenue crisis governments face.

            Yes it is! Did you even read my comment?

            Squeeze the poor = the economy suffers = less taxes collected.
            Squeeze the rich = poor spend more = economy improves = more taxes collected.

            A suffering economy means there is less money being spent, less money flowing through the economy, less profits being made, less income for people. All of these things mean less taxes being collected.

            Relative tax burden is extremely important because it has huge impacts on whether the economy is strong or weak.

        4. I think the last time I looked at this, the top 50% of tax payers bear 96% of the tax burden in the US. 

          The other 50% cover 4% of the tax burden. 

          How you interpret those results is what shapes your opinion on how to solve the debt problem in the US (and perhaps other countries). 

    2. Ireland has, for years, competed in the European market by via of fiscal dumping: taxes for corporations were set much lower than the average European country, “trickling down”. Most European countries were quite pissed off about it, but the Irish position was that it was the only way to  get out of poverty (which might have been true, who knows). When the economic cycle contracted, as it’s bound to do (in this case, starting from the US real-estate bubble bursting), they found themselves without enough money to cover their busted banks. Now blocked in the Euro straightjacket, they couldn’t play on the exchange market like you usually do in these cases. Oops.Greece cooked their books when joining the Euro, yes, but they also overspent on military supplies, because they love to measure their dick with their neighbours, and if you don’t give generals some cash pronto, they tend to take it personally — they’ve “learnt to golpe” from their American friends during the Cold War and now it’s like a habit for them. This was compounded when France and Germany basically forced them to buy MORE military supplies (from them, of course) as a precondition for the first round of bailout money, in practice nullifying the effort. So again, when the economic cycle deflated, they looked for ways out and, thanks to the Euro, there was none. A culture of tax-evasion is widespread, yes, but to be honest, anyone who knows anything about places like UK, France or Germany know that nobody likes the taxman. It’s not the main cause of the crisis; it only became a topic when it became clear that the most of the necessary “sacrifices” would fall on the common man, as usual.In both cases, there is no “calibration” to do: they just need help with old debts that have ballooned because of international speculation. Issuing Eurobonds straight away would have solved the crisis in one month.

      1. There are a bunch of parts of that that don’t seem to be well-supported. Tax compliance (as opposed to love for the tax man) is much, much higher in the UK and Germany (not sure about France) than in Greece. That *is* a problem. Also, a eurobond that is guaranteed by someone else’s future revenue (rather than Greece’s) is not solving Greece’s problem. If Greece wants to be a Bundesland it ought to apply. If not, it has to get hold of its finances.

        1. Yeah, tax compliance where the taxman tells you to establish your Ltd in the Isle of Man (which is basically a tax-haven) if you’re a contractor, and legally avoid paying your share. I know, I live here. Not a surprise that we’re having a budget crisis here as well — we’re holding on only because we manage  money for too many Russian oligarchs in London, so Moody’s and their ilk will never downgrade us as long as this goes on, and we still have the good ol’ Pound Sterling to save us if needs be (we de-facto devalued the currency in 2008, without much fanfare), but it’s a sham.

          Greece is “becoming a Bundesland” anyway by having to beg for money every few months. Having an Eurobond would have solved the problem in a fair way; insisting on these ad-hoc “begging rounds” it’s just beneficial for Germany (and France, although they’ve been more honest by supporting the Eurobond). Having a central bank that cannot operate like real central banks (i.e. issuing debt as well as managing currency) is an idiotic neo-liberal arrangement that every sane economist under the sun is now criticizing.

          Eurozone countries are now over their national markets — they live and die in an integrated system that works at a higher level. They simply have to resign themselves to the idea that the old principles they used at a national level must now be applied at the European level, which also means that richer areas will have to subsidize poorer ones by guaranteeing their debts. That’s how it works in the States as well — the Federal Government will issue debt which is backed, in practice, by things like west-coast output and the like, and use that money to fix Louisiana. Same should happen in Europe, when we’re done squabbling about who was right in the XIX century.

          1. Greece is “becoming a Bundesland” anyway by having to beg for money every few months.

            First east Germany and now Greece? Western states are still paying for eastern states in Germany. This is all but a happy prospect.

  8. One argument I keep hearing in support of austerity is that we are “spending our grandchildren’s money.”  This is totally bas-akwards.  If anybody benefitted from the prior deficit spending, it is the parents and grandparents (the current taxpayers).    Thus, it is precisely the current taxpayers who should be paying more taxes NOW to get their balances closer to even-steven.  Austerity reduces FUTURE growth, which represents the wealth of the future generations.  Austerity equals “spending our grandchildren’s future”.

    1. I don’t know if austerity reduces future growth, and for how long. Proving the first and quantifying the second would be important in understanding what is happening.

        1. That’s current growth, not a generation’s worth of growth IF the unemployment is short term. There can be no argument that in the short term it hurts growth, but when we are talking about grandchildren we have left the short term in the dust.

          1. I guess that assumes the austerity measures can actually improve the economy in the long run, back to square one, eh? :-/

      1. Several historical examples of austerity  during bad times provides evidence that such a policy slows growth, even in the longer haul.  I am thinking of the attempts to balance budgets during the mid/late 30s, which sent the New Deal economic recovery back on its heels.  According to the “austerity leads to more future growth for our children” argument, the wartime deficit spending that came after did not fuel the post-war boom and prosperity–it was actually the forward-thinking  mid-30s frugality.   You would have trouble finding any economist–of any philosophy–who believes that.

        If you want a more recent example, look at Japan and its deflationary spiral. Better a little more inflation than replicate what they’ve gone through because of insufficient and poorly-timed  government stimulus.

    2. Spending money like there’s no tomorrow didn’t do the Greek economy much good, did it? Maybe the central problem is corruption.

  9. I’m glad Daily Kos has written this so that blogs like you all notice it, but the New York Times (the old media you love to hate) has been banging this drum for two years.

    Indeed, Times columnist (and Nobel Prize winner) Paul Krugman just wrote another article on this three days ago, “Europe’s Economic Suicide“, saying much the same thing. Daily Kos’s article came out that evening.

    1. Of course, Krugman also thinks the U.S. will go into a depression like the 1930s if the stimulus bill is not twice the size it was, so I am not sure that I am believing Krugman. Also, I think he won his Nobel for actual scholarly work he did, not the crap he pumps out in the Times.

      1. He predicted the crisis well before it happened.  See my post earlier.  IIRC he did complain about the weakness of the stimulus, not just its size, but how it was targeted.  I think that was a reasonable complaint.  How many more years do jobs (just limping along) and wages (completely stagnant), increasing poverty, and so on.. need to persist before we consider this a depression?  A different one than the “great” one, but a serious depression nonetheless.

        1. Krugman was predicting an entirely different crisis. Go back and read in context. The crisis he was predicting looks the same as this one, but he was talking about a political deal, not the property bubble.

          I don’t deny that this recession has been terrible. I have heard stories from the 1930s and don’t think we have any idea what that was like.

          1. He predicted the housing bubble bursting and what that’d do to the economy as well.  Many, many mentions of it being a problem from him while everybody was loving it:

            But although the housing boom has lasted longer than anyone could have imagined, the economy would still be in big trouble if it came to an end. That is, if the hectic pace of home construction were to cool, and consumers were to stop borrowing against their houses, the economy would slow down sharply. If housing prices actually started falling, we’d be looking at a very nasty scene, in which both construction and consumer spending would plunge, pushing the economy right back into recession.

            That’s why it’s so ominous to see signs that America’s housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble.

            Some analysts still insist that housing prices aren’t out of line. But someone will always come up with reasons why seemingly absurd asset prices make sense. Remember “Dow 36,000”?

            Much more that’s even more specific and prescient here, just too long to post in this forum:
            So it’s an economy driven by real estate. What’s wrong with that?

          2. @Navin_Johnson:disqus  I don’t want to get into a Krugman pissing match, but many many people understood that there was a housing bubble and that deflating it would be hard and painful. I don’t think Krugman, or many others, understood the extent to which the banks had lied and manipulated the numbers. In my mind THAT activity changed the character of the bubble bursting. It would have been nasty anyway, but they turned into a global crisis.

            For the record, my take on Krugman is that like most columnists he has so many chances to expound that he is right a lot of the time, wrong a lot of the time, and irrelevant a lot of the time. Cherry picking where he is right or wrong is kind of a pointless exercise.

          3.  I think it’s on you to show that he’s been off the mark half the time.  Much of this stuff is somewhat predictable if you’re outfitted with a bullshit detector or aren’t an ideologue. 

            I agree that most people could not fathom the extent of the manipulation.  That was part of the problem of course.  It’s probably not good when financial instruments are so complex and esoteric that even a lot of bankers can’t explain them…

        1. The democratic party.

          He is definitely an intelligent person. His Nobel Prize on trade theory was warranted. However, his stances and one-sided arguments he posts on his blog destroy any credibility he has going forward (for me).

          1. Hmmm.  A “shill”, but generally right.

            Good detective work btw.  I’d have never guessed with his column being called “Conscious of a liberal” that he wouldn’t be a booster for the GOP. It’s also curious that a “shill” has been one of the most vocal critics of the way The Obama Admin has handled the financial crisis.

          2. Yes, I figured his personal failings would make it impossible for you to refute his arguments.

          3. His Nobel Prize on trade theory was warranted. How nice of you to say so! I’m sure that the Nobel committee and Krugman himself are relieved that you do not call this into question.

          4. An actual economist wouldn’t take political stances – period.  He is more of a columnist now.  He makes a fool of himself whenever people actually question his faulty logic.  Look up critiques on him and then actually think about what he says.  He makes straw man fallacies pretty consistently.

          5. “An actual economist wouldn’t take political stances” –  Do you know what economics is? You do know it used to be called “political economy”, right? It is absolutely nothing but political stances. Advocating a particular economic course is, by definition, making a judgement about the political course of society. Stuff like setting interest rates, tax policy, devaluing currency, ALL of this stuff immediately has political implications.

          6.  Yes – this is true that individuals can control the economy (the everyday lives of people) through coercion.  And who has the ability to coerce? The people that make the most fairytale promises, with their infinite wisdom, of bringing happiness and justice for all. 

            Yeah!  Bring on the next debt crisis!

          7. “An actual economist wouldn’t take political stances – period.”
            What? Seriously, economists have basically shaped the political spectrum this century.

            The New Deal? That’s the politics of Keynsian thinking. Thatcher’s Britain? That’s classic Neoliberal economic thinking.

          8. I think you guys are misinterpreting what I said.  My point was that the guy takes more time participating in political bashing rather than taking objective critiques.  His discussions are all one-sided, and when he does show the opposing viewpoint, he often misrepresents it.

          9. My point was that the guy takes more time participating in political bashing rather than taking objective critiques.

            Please take a moment to review your own comments.

          10. I’m not sure how you can misinterpret:
            An actual economist wouldn’t take political stances – period.”
            There is really only one way the sentence can be interpreted. It implies that “actual economists” are a-political. That’s clearly not true.

  10. “IMF, the World Bank and the WTO”
    yes, because those are the people you want to listen to ….

  11. I get the sense that the “austerity” part of the IMF bailout packages is more like the “one” in “one-two punch.”  Austerity measures are taken in order to receive IMF loans.  But the loans primarily go to paying back investors (banks & other high-finance institutions).  Once the investors get that money, they immediately pull that money right out of the country, and the economy crashes all over again — with the added bonus that the country’s government is now hamstrung by austerity measures.

    All this robotic repetition of “governments spending beyond their means!” is wholly devoid of content.

    Increasingly I’m starting to think of the IMF as a kind of mobile looting institution, gathering up cash for investment bankers & leaving destroyed countries in its wake.

    1. “All this robotic repetition of “governments spending beyond their means!” is wholly devoid of content.”

      It seems to me that the different countries are in different circumstances. It is not “without content” to say that Greece collects a small fraction of the revenue they are supposed to collect and provided massive benefits compared to the productivity of the economy. That is going to end in tears, just as it has throughout the centuries when countries tapped the last of their credit and were stuck for a means to pay it back.

    2. @boingboing-b5c6f7094bd23b059624131ec409a422:disqus  “… I’m starting to think of the IMF as a kind of mobile looting institution, gathering up cash for investment bankers & leaving destroyed countries in its wake.”
      In much of the developing world, it’s known as the “Infant Mortality Fund”, because of the effects of the ‘restructuring’ that it imposes.

  12. Austerity right now acts as a blood clot by reducing the circulation of money in the economy.

    This because the other source, bank loans, have already closed up shop. In the end bank loans and deficit spending do the same on the national level (and perhaps even international, depending on how government spending laws are written). Thing is that credit can be both a boon and a problem. A boon in that it smooths out short term bumps in the flow, a problem in that too much eventually leads to a crash unless the lenders are willing to write of the loans.

  13. Austerity *is* the answer, the only question is timing.  We have been living well beyond our means for many years with the far east picking up the tab, that cannot continue for ever.
    Of course it isn’t the answer for everyone but it will work for most countries in Europe, including Portugal and Italy.  Its won’t work for the other three listed above though, Greece still needs to default, Ireland and Spain need to let their banks crash and only cover the consumer deposits.

    It is Ireland and Spain I feel for in all of this, they are taking the pain for problems that didn’t come from the people.  It may be too late to fix Ireland now, they have already handed over all their cash, but spain still pretends its banks are solvent when they clearly aren’t.  The spain crash is yet to come, and no-one can afford that bail out.

    1. This ignores the fact that wages have been stagnant in the US (and Germany) for decades, meaning all the productivity gains – and productivity has gone way up in that much time – have gone to a few wealthy folks. We’re not living beyond our means, we’re being starved already. The secret is not belt-tightening, it is to get the fucking money out of the hands of rich people and back into working-class pockets. There is no way you can pretend that the fact that real wages have not been rising for the vast majority of workers is not a HUGE problem for your economy. That’s why you’re “living beyond your means”, because the ruling class stole your wallet.

  14. Reminds me of Kurt Vonnegut’s epitaph for the earth.  “We could have saved it, but we were too damn cheap.”

  15. The term ‘austerity’ isn’t accurate, because it suggests tightening of belts for everyone. What’s happening in Ireland, for instance, is that a well-paid political and mandarin class, with annual salary increments, vouched and unvouched expenses and pensions at a level inconceivable to a private sector worker or especially to a self-employed sole trader, are making decisions that scathingly cut the meagre wages of those who are already struggling.
    The trouble is that the people making the ‘austerity’ decisions are on such large wages that they simply have no conception of how broke most people are. All their friends are rich too; when they see a headline like this week’s saying that 47% of Irish families have less than €100 a month to live on after their bills (utilities) are paid; or this week’s saying that one in five Irish children goes to bed or to school hungry, they simply answer that this is nonsense because they’ve never met anyone for whom this is the case. 
    Of course they haven’t – these rich people live in a coddled environment where they meet only other rich people. Outside, the fear and the anger are growing as new taxes are loaded on every day – this week, a water meter and water tax, in the rainiest country in Europe… ah, sure it won’t take a feather out of you, it’s only going to be a couple of thousand a year, don’t ye know?

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