Snapshots of Austerity Indifference

Terrance Heath

Depending on your point of view, the results on austerity are in. The roll call European countries with shrunken economies, mired in recession, is identical to the list of European countries yoked to austerity economics — Portugal, Italy, Ireland, Spain, Greece (of course), and now the UK. Those countries are experiencing varying degrees of public reaction against austerity policies. In Prague, Czechs staged the biggest demonstrations their country has seen since the fall of communism, in protest of the austerity measures and corruption in Czech Republic’s center-right government. In France, president Sarkozy now faces a runoff, after elections that were a reaction against austerity. In the Netherlands, the prime minister resigned after EU austerity demands caused the government to collapse. In Romania, the government has collapsed in a no-confidence vote after violent protests against austerity toppled its prime minister in February.

Does the latest wave of uprisings finally sound the death knell for austerity? Not if austerians stay the course, and don’t get spooked by protests in the streets and at the ballot box. If their protests have no impact, and austerity happened anyway, people will go home. They’ll forget about solidarity, worry more about survival, and arrive at the next phase of austerity’s impact on their lives.

Across the Eurozone, citizens are saying “Basta!” to austerity policies, because of the stark difference between what their leaders said austerity would bring and what actually happened. Austerity has brought with them all the pain that was predicted, and none of the shared prosperity that austerity backers promised. as Dave Johnson wrote, maybe people are starting to figure out that economic growth wasn’t the point of austerity.

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.

As Charles Blow writes in response to Mitt Romney’s primary victory speech, people are not stupid. Times didn’t just get tough. They were, in some ways, made tough by design. And austerians at home and abroad have indicated where they plan to take national economies, the global economy, all of us in the bargain.

Indifference

If despair and desperation are the face of austerity among ordinary citizens, it has another among the government officials and bankers: indifference. U.S. News columnist Rick Newman looked at the widespread unrest in Europe, and decided that the real problem isn’t austerity. It’s democracy. Austerity could work if it wasn’t for democracy.

The problem, for better or worse, is democracy.

If Europe were ruled by rational and omnipotent monarchs, fixing the debt crisis would be fairly straightforward.There would be painful reforms in the bloated, nepotistic labor markets of southern Europe, enforceable targets for reducing debt levels across the euro zone, and a widespread understanding that everybody in Europe, rich and poor, should bear some short-term pain. With that in place, there would also be a plan for making sure the economy grows in a way that benefits as many people as possible.

But electoral politics stands in the way of measures meant to make Europe’s troubled nations more competitive and less dependent on borrowed money or bailouts. In the face of intense political pressure at home, for example, the leaders of Spain and Italy are now backsliding on austerity measures meant to cut spending and reduce subsidies that generations of workers have depended on. So the payback is now coming from global investors, who are losing confidence in those economies, pushing up the rates they must pay to borrow, and fueling renewed fears of a European meltdown.

…The dysfunctions of the democratic process may even turn out to be the best of a bad set of options. Jacob Funk Kirkegaard of the Peterson Institute for International Economics points out that Europe is in the midst of profound changes that will require indebted nations to give up an unprecedented degree of sovereignty, and richer nations to make their own sacrifices to keep the euro zone intact. It’s unrealistic to expect quick solutions to such a complicated problem, he argues, and besides, “threatened with disaster, the political will has emerged to sustain the euro.” A few more near-disasters may be just what Europe needs.

The title of Newman’s column, “Tired of Austerity, Europeans Turn on Their Leaders,” is ironic in a way Newman may not have intended. The Europeans raising their voices against austerity across Europe would probably beg to differ. Their leaders, they might say, turned on them by adopting and enforcing austerity measures without citizens having a voice.

Newman needn’t worry. Europe may not be ruled by “rational and omnipotent monarchs,” but it appears to be increasingly ruled by banks whose insistence on austerity ensures that leaders remain indifferent to demonstrations in their streets, and implement austerity measures as they are told. Those who don’t will find themselves out of power, in short order.

Greece, as I mentioned earlier, is a prime example.

Christoulas’s reference to the “Tsolakoglou government” was a not-so thinly veiled slap at Greek Prime Minister Lucas Papademos, comparing him to Georgio Tsolakoglou — first prime minister of Greece’s collaborationist government, during Germany’s WW II occupation of Greece. No doubt Papademos — an economist who was appointed prime minister in November, after democratically elected prime minister George Papandreous was shown the door for having the temerity to his intention to hold a referendum on the terms of the proposed Eurozone bailout. Papandreous was brought to heel and quickly scrapped the referendum.

But it would not do to have a prime minister with the temerity to suggest that Greeks have any say in their economic fate. So Greece, the cradle of democracy, was deprived of a vote. The appointment of a new prime minister, more amendable to the concerns of Greece’s creditors and the providers of its bailout. (Germany, ironically enough, called the shots again.) In less than two weeks, Papandreous was gone, Papademos was in, and eventually the Greeks got austerity policies that satisfied the banks, but meant lower pensions, reduced wages and increased taxes for middle- and working-class Greeks.

But Greece is hardly alone. Protests have already proven futile in the Netherlands, “agreed to E.U. budget targets”, which is another way of saying “knuckled under to demands for austerity.” And British Chancellor George Osborne told the IMF that the British public still backs austerity measures. (One wonders if he includes in that number the Britons who may be unable to meet basic living costs now that their disability benefits have been cut., or the police departments facing deep cuts.) Popular uprisings notwithstanding, more leaders may yet follow Osborne’s example, if they listen to Bundesbank presidentJens Weidmann (a.k.a. “Dr. Nein”), who’s not only the man holding the bailout purse strings, but also a big austerity booster — despite Germany’s generous post-WWII bailout from the rest of Eurpoe (finally paid off in 2010, BTW), and even though Germany itself isn’t very good at German style austerity.

American Style

On this side of the Atlantic, we have been spared the kind of painful cuts that we only read about in headlines from Europe. But we’ve already had what Ed Kilgore calls “De Facto Austerity,” described in Paul Krugman as austerity in the form of huge spending and employment cuts at the state and local level. The results of America’s “De Facto Austerity” are not necessarily the kind that make headlines, but happen in what Sasha Abramsky called “the other America” (which is also the title of his poverty-focused blog at The Nation), and in states like Wisconsin, where Scott Walker’s Austerity agenda has yielded the worse job losses in the country.

The Obama administration’s response to the economic crisis and the ensuing recession was underwhelming, and amounted to far less that what was (and is) actually needed. But at the very least, doing too little, instead of doing nothing at all, allowed most Americans to avoid the kind of crushing economic pain that’s driving Europeans to desperation and despair. As Robert Reich said, telling Americans “we’re on the right trick” and pointing out that things could have been worse, and still could be worse if Mitt Romney wins in November, isn’t much of a campaign strategy.

While he regularly accuses President Obama of “making us like Europe,” Mitt Romney’s economic agenda would truly make America more like Europe, because the Republican agenda is essentially that same austerity agenda shrinking national economies in Europe.

An odd thing happened during Mitt Romney’s victory-lap speech after Tuesday’s Republican primaries: He didn’t once mention the word “Europe.”

The absence was jarring, because Romney’s claim that President Obama is dragging the United States toward a loathsome European-style “social welfare” future has been a staple of the former Massachusetts governor’s shtick ever since he started campaigning in earnest.

It’s always been an easy line for him: Europe, Romney’s audience understands, is the land of the not-free. The continent gave birth to Karl Marx, for crying out loud! Every now and then, socialist political parties actually take power!

But there is a big problem with Romney’s formulation. For the last year or two, Europe has been implementing, in real time, exactly the policies that Romney and congressional Republicans fervently believe are the best strategy for boosting economic growth. It’s called “austerity,” and it means cutting deficits, slashing spending, and chipping away at all those goodies the social welfare state provides.

The omission is even more jarring when you consider that while austerians love to say that the U.S. could end up like Greece (we’re not Greece, and our problems are nothing like Greece’s problems), austerity could make us a whole lot more like the UK.

With the U.S. economy slowing and job growth still very weak, what should the government do? Continued calls for government belt tightening, fiscal consolidation and austerity are out-of-step with economic realities. The argument for austerity is that drastic cuts in government spending will stave off inflation and  provide businesses with the confidence to go out and invest.  But these are empty arguments. Oil prices fluctuate widely, rising for reasons unrelated to government policy. Sustained inflation is only possible if wage and benefit costs are rising. Thursday’s report on employer costs, however, shows that the year-over-year increase in employment costs is a very modest 2 percent and the increase in the latest quarter is even smaller.  As for business confidence taking up the economic slack, the UK provides a stark reminder of just how wrong this argument is.

The UK, like the U.S. and unlike Greece, has its own currency. The UK, like the U.S. and unlike Greece, has its own central bank and control over its own monetary policy. There is no chance that the U.S. (or the UK) can end up like Greece. There is, however, the distinct possibility that the U.S. can end up like the UK.

Almost two years ago, the UK put in place a coalition government led by Chancellor of the Exchequer George Osborne that implemented an austerity program for the UK that cut government spending and public services and was supposed to give British businesses the confidence to invest and boost economic growth.  The outcome has fallen far short of these expectations. The UK is experiencing the slowest growth in a century, with GDP still 4.3 percent below its peak reached four years ago.  Output has grown just 0.4 percent in two years under Osborne , and now – with two back-to-back quarters  of declining GDP – the British economy has officially slipped back into a double-dip recessionConfidence has not returned to UK businesses; indeed lending to businesses fell sharply in March despite the fact that banks had cash available to lend out. Meanwhile, the toll on the British people as government services are cut has become more severe. The charitable trust that operates a network of foodbanks in the UK reported that the number of people turning to foodbanks to feed themselves and their children doubled over the past 12 months.

The wounds to the UK economy are self-imposed. Unlike Greece or Spain, the UK did not come under pressure from the EU. Neither was there pressure from the bond markets; interest rates and borrowing costs were quite low. UK politicians chose to slash spending and impose austerity on the British economy.  The lesson should not be lost on America’s political leaders.  Like the UK, the US has control over its economic policies. It should not choose austerity.

In The Balance

At the moment, a awful lot hangs in the balance.

It’s not hyperbolic to suggest that both the E.U. and the U.S. are facing what my be the most important elections in a generation. In Europe, people have taken their anger over austerity policies to the streets. In some cases, they’ve topped governments. In Europe, upcoming elections in France, Germany, and Greece could be a turning point that puts the breaks on austerity. Alternatively, the long-term outcomes (where policy is developed and implemented long after the heady days of election victory), could prove that E.U. countries are ultimately ruled by banks and bankers whose indifference to the desperation and despair wrought by their policies could become the official stance of national governments in the E.U.

Here in the U.S., the election can be summed up as a choice between “Social Darwinism or a decent society.”

The returns aren’t all in yet on today’s Republican primaries but President Obama didn’t wait. He kicked off his 2012 campaign against Mitt Romney with a hard-hitting speech centered on the House Republicans’ budget plan – which Romney has enthusiastically endorsed.  That plan, by the way, is the most radical reverse-Robin Hood proposal propounded by any political party in modern America. It would save millionaires at least $150,000 a year in taxes while gutting Medicaid, Medicare, Food Stamps, transportation, child nutrition, college aid, and almost everything else average and lower-income Americans depend on.

Here’s what the President had to say about it:

Disguised as a deficit reduction… it is really an attempt to impose a radical vision on our country. It is thinly veiled social Darwinism.

We are likely to hear a lot more about social Darwinism in the months ahead. It was the conservative creed during the late 19th century – legitimizing a politics in which the lackeys of robber barons deposited sacks of money on legislators’ desks, and justifying an economy in which sweat shops were common, urban slums festered, and a significant portion of America was impoverished.

Social Darwinism encapsulated the idea of survival of the fittest (a phrase Charles Darwin never actually used) as applied to societies as a whole. Its chief apostle in America was Yale Professor William Graham Sumner.

In either case, elite indifference to the impact of economic policies on the day-to-day lives of ordinary citizens could rule the day. Where austerity goes, economic inequality and social unrest follow, and the only thing that “trickles down” from the top is that indifference to lives and/or needs others — neighbors, friends, or family — as a necessity for survival.

What do we become, if that happens?

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