Economists like Alberto Alesina and Silvia Ardagna reshaped the world when their theories of "expansionary austerity" were put into effect after the 2008 crisis: the idea that governments could "increase taxes, cut spending, and grow strongly" was powerfully tempting to the world's leaders, who saw in them a way to pull out of a recessionary spiral without limiting the number of yachts the oligarchs they depended on could afford.
States fell into line, though not without literal bloodshed as desperate people took to the streets to fight it.
But one country bucked the trend: Portugal, where, in 2014, a new government rejected the demands of its bond-holders and restored public-sector wages and benefits to pre-2008 levels, funding social programs that relieved the country's 99% after years of crushing austerity and precarity.
Now, Portugal is thriving. Business is good. Exports are up. The country is beating the benchmarks set by its austerity-wracked counterparts in the EU, who are lagging behind, mired in political chaos, xenophobia and nativism, while their billionaires grow even richer.
These economists, to borrow a phrase from the neoconservative Irving Kristol, were soon mugged by reality. Although it failed to address the root cause of the crisis (and has, perhaps, left us vulnerable to another), the stimulus package did grow the U.S. economy, while the European countries that abided draconian austerity measures saw their production and employment crater. (Greece is only now emerging from the wreckage of the debt crisis, and its progress is halting.)
“In late 2010, a bunch of conservative financial and economics luminaries, including Michael Boskin, John Cogan, Niall Ferguson, Kevin Hassett, Douglas Holtz-Eakin, Bill Kristol, and John Taylor, signed an open letter to then-Fed Chair Ben Bernanke warning that ‘[t]he planned asset purchases risk currency debasement and inflation,’” Cooper continues. “Yet it’s been six to eight years since their arguments and there’s hardly been a glimmer of the kind of inflation they warned about. … In fact, not only has there been no hyperinflation, inflation has consistently come in under the Fed’s supposed target value of 2 percent.”
The Evidence Is In, and Austerity Is Declared a Loser [Jacob Sugarman/Truthdig]
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