Punitive Austerity

Paul Krugman today:

So much for complacency. Just a few days ago, the conventional wisdom was that Europe finally had things under control. The European Central Bank, by promising to buy the bonds of troubled governments if necessary, had soothed markets. All that debtor nations had to do, the story went, was agree to more and deeper austerity — the condition for central bank loans — and all would be well.

But the purveyors of conventional wisdom forgot that people were involved. Suddenly, Spain and Greece are being racked by strikes and huge demonstrations. The public in these countries is, in effect, saying that it has reached its limit: With unemployment at Great Depression levels and with erstwhile middle-class workers reduced to picking through garbage in search of food, austerity has already gone too far. And this means that there may not be a deal after all.

Much commentary suggests that the citizens of Spain and Greece are just delaying the inevitable, protesting against sacrifices that must, in fact, be made. But the truth is that the protesters are right. More austerity serves no useful purpose; the truly irrational players here are the allegedly serious politicians and officials demanding ever more pain.

He goes on to explain. once again, that Spain had no budget deficit until the crash and that while there is no way to escape a period of hard times without leaving the Euro (which hes says nobody wants) the cruel austerity measures the bankers and European officials are insisting upon are purely punitive — and unnecessary. In fact, because they are putting such stress on the populace, which is understandably agitated, the country is having trouble borrowing to pay its bills — because bankers are worried about the political instability they are causing.

It’s a mess.

Why, then, are there demands for ever more pain?

Part of the explanation is that in Europe, as in America, far too many Very Serious People have been taken in by the cult of austerity, by the belief that budget deficits, not mass unemployment, are the clear and present danger, and that deficit reduction will somehow solve a problem brought on by private sector excess.

It sounds as though if you were to compare the US to Europe in this matter (always a very dicey proposition) you would call the Germans the Villagers:

Beyond that, a significant part of public opinion in Europe’s core — above all, in Germany — is deeply committed to a false view of the situation. Talk to German officials and they will portray the euro crisis as a morality play, a tale of countries that lived high and now face the inevitable reckoning. Never mind the fact that this isn’t at all what happened — and the equally inconvenient fact that German banks played a large role in inflating Spain’s housing bubble. Sin and its consequences is their story, and they’re sticking to it.

Worse yet, this is also what many German voters believe, largely because it’s what politicians have told them. And fear of a backlash from voters who believe, wrongly, that they’re being put on the hook for the consequences of southern European irresponsibility leaves German politicians unwilling to approve essential emergency lending to Spain and other troubled nations unless the borrowers are punished first.

Of course, that’s not the way these demands are portrayed. But that’s what it really comes down to. And it’s long past time to put an end to this cruel nonsense.

All of our political and financial elite believe this garbage too. And they are selling this 47% trope as a way to divide this country in similar ways. Keep in mind that the Grand Bargain is predicated these days on “avoiding Europe.” You know, we’ll avoid it by doing it.

And if we aren’t lucky enough to avoid another recession, they’ll do the same thing that the Europeans are doing to Spain. This is a global illness and we’ve got it too.

But it’ll all turn out ok in the long run, so no worries. The wealthy will maintain their fortunes, which is the most important thing. And as Andrew Mellon told Herbert Hoover:

“liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

See? It’s all good.

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