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Austerity: The History Of A Dangerous Idea


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Canada has now been governed for some time by conservatives who allegedly care about deficits and debt, yet when the implosion of American banks dragged Canada into a recession, our government started spending far more, not less. Years later, we continue to spend into the red and our debt lurches ever higher. By contrast, even since the ascent of the Conservative Party in London, the U.K. has been biting a fiscal bullet. They have chosen to trim government spending in the hope of jump-starting future economic growth—in a word, austerity. According to Mark Blyth, this is a bad idea: “Austerity doesn’t work. Period.” Believing it only persists due to “epistemic arrogance and ideological insistence,” he sets out to trace the intellectual history of austerity, going back to its roots, from Adam Smith, David Hume and John Locke to more recent proponents like Joseph Schumpeter, Friedrich Hayek and current German leader Angela Merkel. Then Blyth gives us a decidedly discouraging historical tour of austerity in action, which among other things makes us feel sorry for Great Britain’s prospects.

Blyth, a professor at Brown University, is an unusually gifted communicator of complex economic ideas. But though he pens such colloquial sentences—“Iceland, in many ways, was Ireland on crack”—this book is most suitable for readers with at least an intermediate familiarity with macroeconomics. Blyth does not pause long to explain the importance of bond yields. Yet his book provides a rich background for understanding the policy options facing those who would solve the ongoing Euro-crisis. Blyth also revisits the momentous American decision to bail out its banks, which continues to prompt Republican murmurings about the necessity for belt-tightening. Insofar as the United States and Europe have a debt crisis, it is partly the result of a banking crisis. Bank bailouts created much of the debt that we hear so much hyperventilating about. As for puny Iceland, it chose to let its toxic banks go bust, and its economy is now doing rather well.

Blyth is too rigorous to be an ideologue. He thinks austerity measures have their place, but only under the right conditions. Now, apparently, is not such a time.

via Austerity: The History Of A Dangerous Idea – Bookmarked, Books – Macleans.ca.

The Subversive Summit – In These Times


The time is ripe—if not for the full-blown revolution, then at least for a transformative backlash to recenter the imperatives of social justice that have lately become so attenuated.

ZAGREB, CROATIA—What is often described in media, political and financial circles as the global “debt crisis” actually poses even more insidiously widespread dangers than the ubiquitous doom-filled reports commonly inform. “The greatest catastrophe threatening Greece and Europe is not the economic crisis,” says Costas Douzinas, professor of law at Birkbeck, University of London, “but the total destruction of the social bond, the way we see ourselves, the way we see our relation to the community. This is long-term. Economic crisis, fiscal deficits, can be restored in the medium term. But once you lose the social ethos, then there is no way back.”

That was the takeaway in May as scholars, writers, politicians and activists came together at Zagreb’s sixth annual Subversive Forum to plumb the depths of the current malaise, but also to propose remedies for the five years of European economic upheaval that has produced personal hardship, civic unrest, governmental instability and a general sense of paralysis.

For two weeks every year, Zagreb’s civic festival welcomes hordes of progressive lecturers and audiences to a program of films, debates, roundtable discussions and protest-planning sessions. Running past midnight in the city’s elegant 1920-vintage movie house Kino Europa, standing-room-only keynote speeches attract staunch partisans for advancing the interests of the public sphere against the authoritarian mediocracy that now prevails.

The cataclysm of human and social devastation in Europe is this generation’s defining moment. But calling it a debt crisis, as Greek economist Yanis Varoufakis explains, is like going to the hospital with advanced inoperable cancer and having the doctor diagnose your suffering as a pain crisis.

Yes there is pain, but the pain is symptomatic of bigger problems. The “debt crisis” is also a food crisis—people can’t afford to buy enough to eat. It’s a housing crisis, an education crisis, an unemployment crisis, an immigration crisis, a human rights crisis. In Greece, the New York Times reports, prostitution has surged 150 percent in the last two years as a direct result of social desperation, with supply-and-demand dynamics driving prices for sex work as low as five euros.

The Left rightly rejects austerity, despising it as collective punishment of citizens who had nothing to do with the financial collapse. Public health scholars David Stuckler and Sanjay Basu explain in The Body Economic: Why Austerity Kills that such spending cuts drastically lower life expectancy due to a higher prevalence of suicide, HIV, alcoholism, heart disease and depression.

Underlying all these other crises is the steady transformation of the over-bureaucratized European Union into a democracy-free zone. Voter turnout is in decline (especially for European Parliament elections, but also in national contests), as constituencies manifest apathy or disenfranchisement. Decisions that people should be able to make for themselves and that are consequential for their lives—how much society spends on healthcare, on education, on defense—emanate instead from afar by EU administrators. A “Merkiavellian” regime, some call it; a secular empire of finance.

The principles of democratic self-determination are hamstrung by the powerful Troika—the International Monetary Fund, the European Central Bank and the European Commission (the EU’s legislative and operational council)—which a disempowered citizenry increasingly views as an automaton that squelches democracy as it protects the interests of the power elite.

A teachable moment

But as many Europeans grow resigned to the “new normal,” a passionate movement of social democrats and subversive activists aims to recast a fatalistic narrative of inevitable capitulation. From the rubble of this financial catastrophe, they are extrapolating a systemic critique of how this mess came to pass and more importantly, how to use the collapse as a teachable moment. The time is ripe—if not for the full-blown revolution, then at least for a transformative backlash to recenter the imperatives of social justice that have lately become so attenuated.

The EU had been promoted as a strong “single market” (by many reckonings, the world’s largest economy) that would defuse Europe’s centuries of conflict: shared economic prosperity would generate cooperative unity. But clearly the EU has not delivered the promised transnational harmony. Capitalism is, after all, inherently a competition, which means there are winners and losers. Labor, always a weak player in this competition, loses the most in a race to attract foreign investment. Consequently, the labor movement fears a descent into what Slavoj Žižek calls a tyrannical “capitalism with Asian values.”

“Peripheral countries,” a label that has become so prevalent in the EU discourse, typifies the fault lines in the “union.” At the Subversive Forum, I noticed how keenly language highlights these tensions and fissures. Not surprisingly, people don’t like being thought of as peripheral—a lesson that might have been learned in light of the offense that the “third world” has always felt about that similarly condescending term. They also don’t appreciate being called PIIGS, the acronym that lumps together Portugal, Ireland, Italy, Greece and Spain (the extra “i” doesn’t soften the blow). The term is outdated anyhow as more countries slide into severe downturns. With France and the United Kingdom falling into recession and Cyprus imploding, we can expect even coarser acronyms in the future.

It’s not just about nomenclature. The discourse of “othering” reveals old and supposedly effaced neocolonialist prejudices at their worst. In the minds of those who oppose humane terms of support, the “pigs” are lazy and corrupt, unsophisticated and out of date. They have brought their troubles on themselves and forced austerity will do them good.

The idea of Europe and even the word itself, has become toxic, unstable; co-opted by the bureaucrats’ failed vision, nobody knows exactly what it means. Is the UK in Europe? What about other EU but non-Eurozone countries—like Poland or Sweden? Is Iceland, the canary in the coal mine for financial meltdown, European? Euro-Asiatic hybrids such as Russia and Turkey? Non-EU countries like Norway and Switzerland? Can a country be expelled from Europe?

“Europe” is uttered with a sneer or a spasm of abjection. “Euro,” which once denoted simply a strong cosmopolitan currency, is now a root that has spawned a more cynical vocabulary: Eurocritic, Euroskeptic, Europhobe. But if the establishment’s lexicon is becoming degraded, the radical retorts are more fiercely honed. “Union” and “unity” have been exposed as feckless in the face of European inability to sustain these, inspiring a more rousing synonym, “solidarity,” that resounds among those who are focused on social equality rather than financial technicalities. Paradoxically, the counter-rhetoric of the Left has expanded the context of the crisis by contracting the terminology. What was originally construed as “the global economic crisis” morphed into “the Eurozone crisis,” or “the Eurocrisis,” then became more tightly compressed into “the crisis,” and finally—stripping away everything else to convey simply a primordial vortex of personal agony and social decrepitude—the definite article dropped off, leaving just “crisis.”

“Crisis” has mobilized a radical critique of European capitalism. It’s not as simple as debating whether countries should leave the EU, or the euro—as bad as things are now, the alternative is probably catastrophic. But the Left has embarked upon a deep analysis of what sort of society has grown out of the EU’s financial autocracy. “Criminals, disguised as statesmen, were robbing us blind,” says Slovenian poet and critic Aleš Debeljak. “Crisis made us realize this truth.”

The radical mission is to uncover and expose the roots of this incompetence and institutional corruption, to question the motives and hidden agendas lurking beneath the “bankruptocracy” (another salient coinage), to educate and motivate suffering masses, and to reform the system.

“We can’t leave economic issues to the experts any longer,” says Maja Breznik, from the Slovenian Peace Institute. “It’s time for amateur investigations.”

These investigations, an end-run around the self-interested strategies of bankers and other EU cronies, begin from the premise that the vicious circle of debt is not the fault of immoderate spending by governments or households. Instead the primary goal of “recovery” has been a non sequitur: protecting the interests of private moneylenders and multinationals and refilling their coffers after their financial miscalculations and chicanery. The problem as it is being addressed bears little relation to the actual predicament, so society has plunged into deep recession.

As Europe tries to emerge from crisis, an exclusive focus on debt represents a class struggle designed by financiers to transfer losses from their books on to the taxpayers. Troubled countries are forced to sell off their economies to foreign investors. The Troika arranges bailouts under the harshest terms, with the heaviest burdens borne by agencies that support public welfare, because reducing social spending allows countries to pay more money, more quickly, back to the banks.

Privatization of the commons en- sues: everything that can be liquidated is sold, then rented back to the most disempowered classes. Much of the population is perpetually indebted and the idea of “permanent work” becomes a rarity, replaced by piece-work, part-time work and frequent lay-offs. The social contract has been broken.

We “amateur investigators” must ask questions about real value, as opposed to the merely monetary expressions of value that the Troika fetishizes. It seems reasonable to proclaim “bankrupt” (figuratively and literally) the discourse of valuation that culminated in the exotic, abstruse financial products that precipitated the crash.

It is our turn to open the discussion of what is valued from the perspective of the victims of fiscal malfeasance. (By “us” I refer to non-bankers, non-wealthy, non-functionaries and for good measure a healthy cadré of academic fellow travelers.) GDP itself is a subjective measure of value, a war-accounting mechanism that is not the only way to count. A euro is not just a euro: not every use of money is equally valuable. A different model of social accounting—one that focuses on the bottom, the workers, the poor and middle class, and starts with wages, taxes, social security—will produce a very different economic narrative than the one that has predominated for the last five years.

“We demand a new right,” argues Franco “Bifo” Berardi, a Marxist scholar from Milan’s Academy of Fine Arts, “The right to insolvency. We are not going to pay the tax. If I am insolvent, I don’t have money, so I won’t pay the debt.” Instead, there should be a moratorium on interest payments, some debt should be canceled and some repaid with a growth clause (as Germany did in the 1950s). Countries would pay as they grow, and as they can afford it.

Žižek—the Subversive Forum’s patron saint since its inception—warns that the radical Left has historically had a proclivity to sit on the sidelines: “They prefer sometimes not to take power so that when everything goes wrong they can write their books explaining in detail why everything had to go wrong. There is some deeply rooted masochism of the radical Left. Their best books are usually very convincing stories of failure.”

But today there is an especially high onus to take action, to engage in political reform. Leftist activists and politicians do have a concrete agenda for fixing the crisis. In Greece, defying the eulogies of democracy, Alexis Tsipras’ Syriza coalition has shown impressive strength in the last few elections and stands within grasp of parliamentary victory and a majority coalition in the near future. Nearly destroyed by crisis, Greece may soon emerge as the most advanced site of resistance. “The future of Greece is the future of Europe,” Tsipras proclaims, providing a heartening reverberation for the slogan that protestors chant across the continent, “Nous sommes tous des grecs”: We are all Greeks.

The Left’s challenge is to reorganize in a more cooperative, collective way: reclaiming the commons, reappropriating the wealth that is now in the hands of the state and the banks, and reconstituting the social fabric that was destroyed by economic restructuring.

Political platforms like Syriza’s draw on a wealth of theoretical foundations and strategic visions for reform.

Erik Wright, a University of Wisconsin sociologist who wrote Envisioning Real Utopias, is one of many academic subversives who offered Zagreb audiences a sophisticated array of fresh ideas for transcending the status quo of capitalism and replacing it with an emancipatory alternative, a democratic egalitarian pathway that empowers people to take control of their own destinies. Wright described a range of innovations that can be introduced “inside of capitalism” but that embody non-capitalistic principles and more fully reflect the values of democracy: worker-owned cooperatives, participatory budgeting (where citizens help determine civic priorities), freely provided public services like transportation and libraries (which we can think of as anti-capitalist ways to give people mobility and books), and unobstructed access to the commons of intellectual property. Peer-to-peer collaborations like Wikipedia illustrate how a non-capitalist means of production can flourish within capitalism and ultimately displace capitalism altogether (as evidenced by the recent demise of the print edition of that imperialist icon, the Encyclopedia Britannica).

Urban farms organized through community land trusts can support food production divorced from agribusiness. Crowd-sourcing finance like Kickstarter sidesteps the entrenched hegemonies of cultural production. The gift economy in music from the Internet allows people to download songs for free and pay whatever they want. (Wright believes these musicians actually make more income than they would in a conventional sales model because they have created a more palatable moral economy with their fans.)

The crisis of capitalism offers, as a silver lining, the opportunity for us to reconceptualize more democratic and sustainable systems of social and commercial existence. It’s a moment that is uniquely receptive to new ideas, as the old ones have proven so worthless. A subversive smorgasbord can be created in the world as it is, prefiguring things that might be in the world as it could become. Are these just utopian fantasies? A questioner at Wright’s lecture asked whether a smattering of such small-scale interventions could really inspire fundamental social change, to which the sociologist responded sublimely: “We don’t know for sure. The day before Wikipedia was invented, it was impossible.”

ABOUT THIS AUTHOR

Dr. Randy Malamud is regents’ professor and chair of the department of English at Georgia State University. He is the author of eight books, including Reading Zoos: Representations of Animals and Captivity (NYU Press, 1998) and An Introduction to Animals and Visual Culture (Palgrave Macmillan, 2012).   He can be reached at rmalamudgsuedu.

via The Subversive Summit – In These Times.

A Progressive Alternative to Austerity


Passing steeper taxes on the rich isn’t as hard as you’d think.

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BY FRED GLASS

Demographic changes favoring a clear progressive message, coupled with the Occupy movement’s lasting insight that the 1 percent are robbing the rest of us blind, provide the opening to beat back the core conservative idea: that the problem is government and society should seek help from the wisdom of the rich.

“There is no alternative to austerity,” insist the rich, along with their politicians, foundations, think tanks and media.

They’ve been saying it for decades, along with, “taxes are bad,” “government doesn’t work” and “public employees are greedy.”

Consequently, common wisdom had it that “you can’t raise taxes.” Even people who should have known better believed this, while the public sector slid down the tubes.

So how did Proposition 30 succeed? This measure, passed by California voters last November, raises $6 billion a year for schools and services—and in a supposedly “anti-tax” state. The money comes mostly through an income tax hike on rich people, along with a tiny sales tax increase of 0.25 percent.

The story should be better known, because with the right preparation, you could make it happen in your state, too.

Testing the waters

Shortly after Democrat Jerry Brown was elected governor in November 2010, the California Federation of Teachers (CFT) pulled together labor and community groups to craft a ballot measure to raise the revenue needed to keep schools and services afloat. (Full disclosure: I am the CFT’s communications director.)

For two years we had been laying the groundwork for a progressive tax: creating educational materials, publishing opinion pieces, holding training sessions with our members and other unionists, and talking with potential coalition partners.

We funded polls and focus groups, testing how likely various types of taxes would be to gain a majority.

Regressive taxes—like sales taxes and across-the-board income tax hikes—were viewed unfavorably. By spring 2011, people felt ordinary folks had already sacrificed enough, in the worst recession since the 1930s.

The public believed, however, that the rich and large corporations needed to pay their fair share for the common good. They were quite willing to vote for higher taxes on the rich.

As we refined our research, we decided on three principles: bring in the most revenue possible; draw it from those who could most afford to pay; and have the best chance of winning. We arrived at a Millionaires Tax: people who made a million dollars a year would pay an extra 3 percent, and people making $2 million an extra 5 percent, raising $5 billion a year.

Unfortunately, Governor Brown had his own proposal that didn’t follow those principles—it included both a half-cent sales tax hike and an across-the-board income tax increase. People were out gathering signatures for Brown’s initiative, our Millionaires Tax, and a third tax measure sponsored by a wealthy liberal attorney.

The Millionaires Tax ran ahead of the other measures in five straight polls.

In early March 2012, the CFT helped organize a march in the capital against budget cuts and college tuition increases. Thousands of students, faculty, and others paraded Millionaires Tax signs outside the governor’s window.

Two days later, responding to the governor’s charge that three competing measures would all lose, we released the results of a poll testing that idea. It found the others would get less than 50 percent, and the Millionaires Tax would win handily.

At that point the governor called in CFT President Joshua Pechthalt to talk. We compromised and combined the two proposals into Prop 30. The new measure raised the top tax rates on income of $250,000 by 1 percent, on $300,000 by 2 percent, and on $500,000 by 3 percent. We had wanted a permanent tax; Brown’s was for five years. The compromise extended that to seven.

We knew the sales tax was a poison pill and we requested that Brown drop it entirely, but he explained that, to keep the Chamber of Commerce neutral, he had promised not to “demonize the rich,” meaning there had to be a “shared sacrifice” component. He did agree to reduce it to a quarter cent.

Sales tax confusion

Our research was validated during the campaign—people don’t like regressive taxes like the sales tax. Millions of dollars in opposition ads did their best to confuse the voters, calling Prop 30 “a massive tax increase on everyone.”

CFT’s coalition, Reclaiming California’s Future, included the Alliance of Californians for Community Empowerment (which emerged after ACORN’s demise), the Courage Campaign and California Calls, a coalition of community groups dedicated to reforming the tax system through voter education and expanding the electorate.

Our coalition emphasized the “tax the rich” message in our literature, public events and door-to-door canvassing, but we were only part of a much broader Prop 30 coalition. The official campaign’s TV ads included asking the wealthy to pay their fair share, but as one message buried among others.

The polling numbers gradually sank to a bare 50 percent. One poll, three weeks before the election, had Yes on Prop 30 at just 48 percent, while the Nos had crept up to 44 percent.

The governor campaigned mostly on the idea that Prop 30 would save education from further cuts, but threw in “shared sacrifice” and “paying down the state’s wall of debt” in his public pronouncements.

We agreed with the education message, disagreed with the others, and insisted on a strong emphasis on taxing the rich. We stressed to the governor that, in order to neutralize the opposition’s ads, the public had to understand what services the tax paid for, who it taxed, and by how much.

In the final weeks, as the governor worked with CFT and other allies in rallies and media appearances, his message became clearer and more consistent: Prop 30 would stop cuts to schools and was fair, because, he said (drawing on his Jesuit background and citing St. Luke), it asked “those who are blessed with the most wealth to give back a little bit so everyone could benefit.”

Ninety percent of Prop 30’s revenues would come from taxing the wealthy; and the quarter-cent sales tax, he said, amounted to a “mere penny on a $4 sandwich.”

Reshaping debate

On Election Day, Prop 30 won 55 percent to 45 percent, reshaping the decades-old understanding of California as an “anti-tax” state. It is the single largest progressive tax passed in the state since World War II, both in the amount of revenue raised and as a percent bump on the income taxes of the wealthy.

What are some lessons from this tremendous victory?

If the word can be gotten out effectively, the electorate is ready to pass progressive taxes to pay for common needs like schools and services.

Demographic changes favoring a clear progressive message, coupled with the Occupy movement’s lasting insight that the 1 percent are robbing the rest of us blind, provide the opening to beat back the core conservative idea: that the problem is government and society should seek help from the wisdom of the rich.

Prop 30’s message was that public education is the foundation of a decent society and we can restore that promise if the rich pay their fair share of taxes.

The anti-Prop 30 messages were the same as always—government can’t do anything right; the rich will leave California if we tax them; taxes are too high; if we remove the waste, fraud, and abuse in government there will be plenty of money for schools.

But these ideas, so effective in the past, had lost their potency, because, especially post-Occupy, the public understands that economic inequality is growing.

Spending tens of millions of dollars didn’t work for the rich this time. In fact, it backfired—they proved our point. We didn’t have to “demonize” the rich; they did it themselves.

Another key, of course, was the old-fashioned work of reaching out to core constituencies. The Reclaiming coalition was crucial, along with a ground campaign by the broader labor movement, which was heavily mobilized to fight an anti-union measure on the ballot (which lost).

Volunteers and staff spent countless hours knocking on doors, phonebanking, rallying, educating. We reached out systematically to less-likely voters—young people, college students, immigrants, lower-income communities of color—and convinced them to come out to vote for their own futures.

Credit for this orientation is due especially to California Calls, which has targeted less-likely voters and stayed in touch over several election cycles.

This year California has begun to restore funds for public education for the first time in years. There is an alternative to austerity; its name is “progressive taxes.”

Reprinted with permission from Labor Notes.

ABOUT THIS AUTHOR

Fred Glass is communications director for the California Federation of Teachers

via A Progressive Alternative to Austerity – In These Times.

Hospital pharmacists warn austerity measures are negatively impacting patient welfare


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Member countries of the European Association of Hospital Pharmacists (EAHP) have issued a jointly agreed statement expressing apprehension about the impact of public spending austerity on services to patients in hospitals.

Amongst the negative impacts of public spending austerity causing concern to hospital pharmacists are: increasing expectancy placed upon patients to meet the up-front costs of their medicines; the unintended impacts national cost-cutting measures are having in respect of medicines shortage; short-staffing in hospitals; diminished opportunities for healthcare professional training and development; and shrinking investment in areas of patient safety enhancement.

EAHP’s members have called for a European Commission review into the potential for greater joint level cooperation between governments in terms of reducing the detrimental health impacts of austerity measures. Such a review could be conducted in the context of both the pan-European aspects of these problems, and the remit of the European Union to take action in the area of public health, as per article 168 of the Treaty on the Functioning of the European Union.

Speaking about the new policy statement, EAHP president Dr Roberto Frontini said, “Hospital pharmacists, by the nature of our profession, are highly attuned to detecting patient safety threats. So with the impacts of public spending squeezes now keenly felt in almost all European countries, we call for greater caution, care and compassion by policy-makers when it comes to the area of health. Too much progress has been achieved in previous decades to be casually discarded in a rush to resolve macro-economic challenges. Sober analysis must made of the patient safety implications of all decisions, as well as the impacts on sustainable health services.”

Dr Frontini further added, “I see significant potential value that could be delivered by the European Commission taking a proactive role in helping member states navigate the current financial challenges to health systems. Ultimately, we all have a duty to ensure that it is not the sick and vulnerable that pays the price of austerity.”

EAHP is an association of national organisations representing hospital pharmacists at European and international levels.

via Hospital pharmacists warn austerity measures are negatively impacting patient welfare.

Debt, Austerity, Devastation: It’s Europe’s Turn


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Like plague in the 14th century, the scourge of debt has gradually migrated from South to North. Our 21st-century Yersinia pestis isn’t spread by flea-infested rats but by deadly, ideology-infested neoliberal fundamentalists. Once they had names like Thatcher or Reagan; now they sound more like Merkel or Barroso; but the message, the mentality and the medicine are basically the same. The devastation caused by the two plagues is also similar – no doubt fewer debt-related deaths in Europe today than in Africa three decades ago, but probably more permanent harm done to once-thriving European economies.

Faithful – and older – New Internationalist readers will recall the dread phrase ‘structural adjustment’. ‘Adjustment’ was the innocent-sounding term for the package of economic nostrums imposed by wealthy Northern creditor countries on the less-developed ones in what we then called the ‘Third World’. A great many of these countries had borrowed too much for too many unproductive purposes. Sometimes the leadership simply placed the loans in their private accounts (think Mobutu or Marcos) and put their countries in hock. Paying back in pesos, reals, cedis or other funny money was unacceptable: the creditors wanted dollars, pounds, deutschmarks…

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Anti-austerity protests in Spain

 

Furthermore, the Southerners had contracted their loans at variable interest rates, initially low but astronomical from 1981 when the Federal Reserve declared an end to the era of cheap money. When countries such as Mexico threatened default, panicked creditor-country treasury ministers, top bankers and international bureaucrats spent some sleepless weekends eating take-out and cobbling together emergency plans.

Plus ça change, plus c’est la même chose.* Decades later, serial crisis meetings still take place, this time in Brussels and, with minor variations, the response is identical: you only get a bailout in exchange for committing to a set of stringent requirements. These once echoed the neoliberal ‘Washington Consensus’; now they are more truthfully labelled ‘austerity packages’ but demand the same measures. Sign here, please, in blood.

For the South, the contracts said: ‘Cut back food production and grow cash-earning crops. Privatize your State enterprises and open up profit-making activities to foreign transnational corporations, especially in raw materials and extractive industries, forestry and fisheries. Drastically limit credit, cancel subsidies and social benefits. Make health and education paying propositions. Economize and earn hard currency through trade. Your prime responsibility is to your creditors, not your people.’

Now it’s Europe’s turn. The countries of southern Europe, plus Ireland, are relentlessly told: ‘You have been living beyond your means. Now pay.’ Governments meekly accept orders and their people often assume that their debt must be paid instantly because the debt of a sovereign State is just like the debt of a family. It’s not – a government accumulates debt by issuing bonds on financial markets. These bonds are bought mostly by institutional investors such as banks which receive an annual interest payment, low when the risk of default is low, higher when it isn’t. It’s absolutely normal, desirable and even necessary for a country to have a debt which will pose zero problems and generate many benefits if the money is prudently invested for the longer term in productive activities such as education, health, social benefits, solid infrastructure and the like.

Indeed, the higher the proportion of public spending in a government budget, the higher the standard of living and the more jobs are created – including private-sector jobs. This rule has been verified time and again since the correlation between public investment and national well-being was first noted in the late 19th century.

Obviously, borrowed money can also be wasted and spent stupidly and benefits can be distributed unfairly. The big family-State budget difference is that States don’t disappear like bankrupt companies. Productive, well-managed investment financed by government borrowing should be seen on the whole as A Good Thing.

The magic numbers

In 1992, European countries narrowly voted Yes to the Maastricht Treaty, which at the insistence of Germany contained two magic numbers, 3 and 60. Never allow a budget deficit greater than three per cent; never contract public debt greater than 60 per cent of your Gross Domestic Product (GDP).** Why not two or four per cent, 55 or 65 per cent? Nobody knows, except perhaps some ancient bureaucrats who were there, but these numbers have become the Law and the Prophets.

In 2010, two famous economists announced that beyond 90 per cent of GDP, debt would plunge a country into trouble and its GDP would contract. That sounds logical because interest payments would take a bigger chunk out of the budget. But in April 2013, a North American PhD candidate tried to replicate their results and found he couldn’t. Using their figures, he got a positive result for GDP which would still rise by more than two per cent per annum. The famous, if red-faced, twosome had to admit they were Excel victims and had misplaced a comma.

Even the International Monetary Fund has confessed to similar mistakes, this time on the austerity cuts issue. We now know, because the Fund was honest enough to tell us, that cuts would hurt the GDP by two to three times more than it initially foresaw. Europe should go easy, says the IMF, and not ‘drive the economy with the brakes on’. The magic 60 per cent of GDP debt limit is no more sacred than the three per cent deficit limit; yet policies remain the same, because the neoliberal hawks seize upon every scrap of dubious evidence that seems to promote their cause.

We are faced with two basic questions. The first is why did the debts of European countries rise so steeply after the crisis struck in 2007? In just four years, between 2006 and 2010, debts escalated by more than 75 per cent in Britain and Greece, by 59 per cent in Spain and by fully 276 per cent in all-time champion Ireland, where the government simply announced it would assume responsibility for all the debts of all the private Irish banks. The Irish people would henceforward be held responsible for the irresponsibility of Irish bankers. Britain did the same, though in lesser measure. Just as profits are privatized, losses are socialized.

So citizens pay through austerity, whereas bankers and other investors who bought the country’s bonds or toxic financial products contribute nothing. After the 2007 crisis, the GDP of European countries dropped by an average five per cent and governments had to compensate. Escalating business failures and mass unemployment also meant more expenditures for governments just when they were taking in less income from taxes.

The New Morality

Economic stagnation is expensive – higher expenditure and lower revenue add up to a single answer: borrow more. Saving the banks and taking the consequences of the crisis they created are the fundamental reason for the debt crisis – and consequently for harsh austerity today. People were not ‘living beyond their means’ but the New Morality is clearly ‘Punish the Innocent, Reward the Guilty’.

This is no defence of stupid or corrupt policies such as allowing the Spanish housing bubble to inflate or Greek politicians to hire masses of new civil servants after each election. The Greeks have a bloated military budget and inexcusably refuse to tax the great shipping magnates and the Church – the biggest property owner in the country. But if your bathtub leaks and the dining room paint is peeling, do you burn down your house? Or do you fix the plumbing and repaint?

The human consequences of austerity are inescapable and well known: pensioners search through rubbish bins at mid-month hoping to find a meal; talented, well-educated Italians, Portuguese and Spaniards flee their countries as unemployment for their age group approaches 50 per cent; unbearable stress is laid on families; violence against women increases as poverty and distress rise; hospitals lack essential medicines and personnel, schools decline, public services deteriorate or disappear. Nature takes the brunt as well: nothing is invested in reversing the climate crisis or halting environmental destruction – it’s too expensive. Like everything else, we can’t do it now.

We know these outcomes, the results of what Angela Merkel calls ‘expansionary austerity’ policies. This neoliberal theory claims that markets will be ‘reassured’ by tough policies and reinvest in the newly disciplined countries concerned. This hasn’t happened. Pictures of Merkel adorned with swastikas are appearing throughout southern Europe.

Many Germans think they are helping Greece – and they don’t want to anymore. In fact, virtually all the bailout money has taken a circuitous route: EU government contributions made through the European Stability Mechanism have been channelled via the Greek Central Banks and private banks right back to British, German and French banks that had bought up Greek Eurobonds to get a higher yield. It would be simpler to give European taxpayers’ money directly to the banks, except that said taxpayers might notice. Why make an ongoing psycho-drama over two per cent (Greece) or 0.4 per cent (Cyprus) of the European economy? A cynic might say: ‘Easy. To ensure Ms Merkel’s re-election in September.’

The second basic question is: why do we continue to apply policies that are harmful and don’t work? One can look at this self-created disaster in two ways. Eminent prize-winning economists like Paul Krugman or Joseph Stiglitz believe that the European leadership is brain-dead, ignorant of economics and needlessly committing economic suicide. Others note that the cuts conform exactly to the desires of such entities as the European Roundtable of Industrialists or BusinessEurope: cut wages and benefits, weaken unions, privatize everything in sight and so on. As inequalities have soared, those at the top have done nicely. There are now more ‘High Net Worth Individuals’ with a much greater collective fortune than in 2008 at the height of the crisis. Five years ago there were 8.6 million HNWIs worldwide with a pile of liquid assets of $39 trillion. Today, they are 11 million strong with assets of $42 trillion. Small businesses are failing in droves, but the largest companies are sitting on huge piles of cash and taking full advantage of tax havens. They see no reason to stop there.

This is not a crisis for everyone and the European leadership is no more stupid than its counterparts elsewhere. It is, however, entirely subservient to the desires of finance and the largest corporations. Certainly, neoliberal ideology plays a key role in its programme but serves especially to emit thick smokescreens and pseudo-explanations and justifications so that people will believe There Is No Alternative. Wrong: the banks could have been socialized and turned into public utilities, like other utilities that run on public money; tax havens closed down, taxes levied on financial transactions and many other remedies applied. But such thoughts are heretical to neoliberalism (although 11 Eurozone countries will start taxing financial transactions in 2014).

I am a fervent European and want Europe to thrive, but not this Europe. Against our will we have been plunged into class warfare. The only answer for citizens is knowledge and unity. What the one per cent has imposed, the 99 per cent can reverse. But we’d better be quick about it: time is running out.

Susan George is Board President of the Transnational Institute and author of 16 books, most recently Whose Crisis, Whose Future? and How to Win the Class War, on her website in June for electronic download and print on demand along with six ‘Susan George Classics’.

* ‘The more things change, the more they stay the same.’

** Public debt is money owed by a government in the form of loans obtained on the financial markets rather than other forms of lending.

via Debt, Austerity, Devastation: It’s Europe’s Turn.

Who are the real criminals?


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Desperate poverty drives some people to desperate acts. The Hull Daily Mail reports that 40% more people seem to be stealing food for personal consumption in Hull than last year.

The police believe this is directly linked to the fact that more and more people cannot afford to pay for life’s essentials. As the bedroom tax, council and benefit cuts bite, more and more will be pushed towards tough decisions – “Do I pay my rent and bills or feed my family”?

The article says austerity is the cause of increased food shoplifting but sees the main victims of crime as the small businesses being robbed. In a time of austerity most small shopkeepers are squeezed by the giant corporations who can afford to undercut them and by sections of the working class who cannot afford to use their shops.

Austerity hits sections of the middle class badly – see how many independent shops have gone broke. Local butchers, bakers and greengrocers went bust and were replaced on the high street by pawnshops and payday loan sharks.

A determined working class fightback against austerity would draw in support from large layers of the middle class including small shopkeepers.

Tory media cry crocodile tears for the poor. The Hull Daily Mail’s scandalous ‘solution’ was to name and shame six local offenders caught stealing food. We do not support theft as an answer to poverty. But who are the real criminals here?

Is it the mother who has just had her benefit cut through bedroom tax who steals baked beans worth a few pence to feed her children. Or fat cat businessmen who legally rob millions of pounds a year through exploiting tax loopholes?

The real criminals are the ruling class who run a capitalist system which robs the poor to give to the rich. Join the Socialist Party and fight for a socialist society.

 

Ireland to be subject to Troika inspections for almost 20 years


Inspections will allow Brussels propose possible budget changes

The International Monetary Fund (IMF) says there is no evidence that Irish austerity policies are doing it harm.

The fund has rejected complaints from its former chief of mission to Ireland Ashoka Mody who said the austerity policies were doing more harm than good.

It has meanwhile emerged that Ireland will have to remain subject to regular budget inspections for almost two decades despite exiting the bailout this year.

Mr. Mody had said Ireland should consider scaling back its austerity policies. However the IMF says Mr. Mody no longer works for the fund and his views do not represent those of the fund.

The IMF has suggested it wants a full budget package of €3.1 billion in spending cuts and tax increases even if it is more than enough to meet Irish targets.

The Finance Minister has meanwhile confirmed that Ireland will remain subject to Troika inspections for almost two decades.

Michael Noonan says rules agreed by ministers last year will mean Ireland will have regular visits until it has repaid three-quarters of its EU bailout loans. Under our current timetable Ireland will not reach that target until 2032.

The inspections will allow authorities in Brussels to propose possible changes to future Irish budgets long after the bailout programme ends this December.

via Newstalk – Ireland to be subject to Troika inspections for almost 20 years.

Austerity And Resistance: The Politics Of Labour In The Eurozone Crisis


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Europe is haunted by austerity. Public sectors across the European Union (EU) have been cut back and working class gains from the post-war period seriously undermined. In this article, I will assess the causes of the crisis, its implications for workers and discuss the politics of labour in response to the Eurozone crisis.

The underlying dynamics of the Eurozone crisis

Current problems go right back to the global financial crisis starting in 2007 with the run on the Northern Rock bank in the United Kingdom (UK) and reaching a first high point with the bankruptcy of Lehman Brothers in 2008. Two major consequences of the crisis can be identified. First, states indebted themselves significantly as a result of bailing out failing banks and propping up the financial system. Second, against the background of high levels of uncertainty financial markets froze. Banks and financial institutions ceased lending to each other as well as industrial companies. Countries too found it increasingly difficult to re-finance their national debts. The Eurozone crisis, also known as the sovereign debt crisis, commenced.

Nevertheless, this analysis only scratches the surface of the causes of the crisis. The fundamental dynamics underlying the crisis have to be related to the uneven nature of the European political economy. On the one hand, Germany has experienced an export boom in recent years, with almost 60 per cent of its exports going to other European countries (Trading Economics, 10 May 2013). Germany’s trade surplus is even more heavily focused on Europe. 60 per cent are with other Euro countries and about 85 per cent are with all EU members together (de Nardis, 2 December 2010). However, such a growth strategy cannot be adopted by everybody. Some countries also have to absorb these exports, and this is what many of the peripheral countries which are now in trouble, such as Greece, Portugal, Spain and Ireland, have done. They, in turn, cannot compete in the free trade Internal Market of the EU due to lower productivity rates. Germany’s export boom has resulted in super profits, which then require new opportunities for profitable investment. State bonds of peripheral countries as well as construction markets in Ireland and Spain seemed to provide safe investment opportunities. In turn, these investments led to yet more exports from Germany to these countries and yet further super profits in search of investment opportunities.

Who is being rescued?

It is often argued in the media that citizens of richer countries would now have to pay for citizens of indebted countries. Cultural arguments of apparently ‘lazy Greek’ workers as the cause of the crisis are put forward. Nevertheless, this is clearly not the case. Greek workers are amongst those who work the longest hours in Europe (BBC, 26 February 2012). In any case, it is not the Greek, Portuguese, Irish or Cypriot citizens and their health and education systems, which are being rescued. It is banks, who organised the lending of super profits to peripheral countries, which are exposed to private and national debt in these countries. For example, German and French banks are heavily exposed to Greek debt, British banks to Irish debt (The Guardian, 17 June 2011).

What is the purpose of the bailout programmes?

Is the purpose of the bailout programmes to ensure the maintenance of essential public services in Europe’s periphery? Clearly not. On the contrary, the Troika consisting of the European Commission, European Central Bank and the International Monetary Fund (IMF) demands cuts in public finances precisely for services such as education and health care. Is the purpose to assist peripheral countries in re-gaining competitiveness? Again, this too is clearly not the objective. The bailout programmes do not include any industrial policy projects.

The true nature of the bailout programmes is visible in their conditionality, making support dependent on austerity policies including: (1) cuts in funding of essential public services; (2) cuts in public sector employment; (3) push towards privatisation of state assets; and (4) undermining of industrial relations and trade union rights through enforced cuts in minimum wages and a further liberalisation of labour markets. Hence, the real purpose of the bailout programmes is to restructure political economies and to open up the public sector as new investment opportunities for private finance. The balance of power is shifted further from labour to capital in this process. Employers, ultimately, use the crisis in order to strengthen their position vis-à-vis workers, facilitating exploitation.

Are German workers the winners due to the export boom?

In contrast to general assumptions, German workers have not benefitted from the current situation. German productivity increases have, to a significant extent, resulted from drastic downward pressure on wages and working related conditions.

“Germany has been unrelenting in squeezing its own workers throughout this period. During the last two decades, the most powerful economy of the eurozone has produced the lowest increases in nominal labour costs, while its workers have systematically lost share of output. EMU[2] has been an ordeal for German workers” (Lapavitsas et al, 2012: 4).

The Agenda 2010 and here especially the so-called Hartz IV reform, implemented in the early 2000s, constitutes the largest cut in, and restructuring of, the German welfare system since the end of World War II. In other words, Germany was more successful than other Eurozone countries in cutting back labour costs. “The euro is a ‘beggar-thy-neighbour’ policy for Germany, on condition that it beggars its own workers first” (Lapavitsas et al, 2012: 30).

Hence, while the mainstream media regularly portray the crisis as a conflict between Germany and peripheral countries, the real conflict here is between capital and labour. And this conflict is taking place across the EU as the economic crisis is used across Europe to justify cuts. In the UK, although not in the position of countries such as Greece, Portugal or Ireland, people too are faced with constant further cuts and restructuring including privatisations in the health and education sectors as well as attacks on employment rights. In short, across the EU, employers abuse the crisis to cut back workers’ post-war gains. The crisis provides capital with the rationale to justify cuts, they would otherwise be unable to implement.

What possibilities for labour to resist restructuring?

Considering that austerity is a European-wide phenomenon, pushed by Brussels but equally individual national governments, it will remain important that trade unions combine resistance to neo-liberal restructuring at the European level with resistance at the national level. To declare solidarity with Greek workers is a good initiative by German and British unions, for example. Nevertheless, the more concrete support is resisting restructuring at home. Any defeat of austerity in one of the EU member states will assist similar struggles elsewhere.

When thinking about alternative responses to the crisis, short-term measures can be distinguished from medium- and long-term measures. Immediately, it will be important that German trade unions push for higher salary increases at home so that the German domestic market absorbs more goods, which are currently being exported. Along similar lines is the proposal by the Confederation of German Trade Unions (DGB) for an economic stimulus, investment and development programme for Europe. This new Marshall plan is designed as an investment and development programme over a 10-year period and consists of a mix of institutional measures, direct public sector investment, investment grants for companies and incentives for consumer spending (DGB 2013). Neo-Keynesian measures of this type will ease the immediate pressure on European economies. However, they will not question the power structures, underlying the European political economy.

A victorious outcome in the struggle against austerity ultimately depends on a change in the balance of power in society. The establishment of welfare states and fairer societies were based on the capacity of labour to balance the class power of capital (Wahl 2011). Overcoming austerity will, therefore, require a strengthening of labour vis-à-vis capital. As Lapavitsas notes, “a radical left strategy should offer a resolution of the crisis that alters the balance of social forces in favour of labour and pushes Europe in a socialist direction” (Lapavitsas 2011: 294). Hence, in the medium-term, it will be essential to intervene more directly in the financial sector. As part of bailouts, many private banks have been nationalised, as for example the Royal Bank of Scotland in the UK. However, they have been allowed to continue operating as if they were private banks. Little state direction has been imposed. It will be important to move beyond nationalisation towards the socialisation of banks to ensure that banks actually operate according to the needs of society. Such a step would contribute directly to changing the balance of power in society in favour of labour.

In the long run, however, even the change in power balance between capital and labour will not be enough. Capitalist exploitation is rooted in the way the social relations of production are set up around wage labour and the private ownership of the means of production. Exploitation, therefore, can only be overcome if the manner in which production is organised is being changed itself.

[1] This article was first published in Norwegian on radikalportal.no

[2] European Monetary Union

via Austerity And Resistance: The Politics Of Labour In The Eurozone Crisis.

Austerity and what your Government Should be doing for You


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If all nations are in debt and all citizens are to be forced into lifelong austerity to pay off “their” creditors then the most important question in the world becomes:
Identifying the creditors and asking why they have precedence over the  lives of people who did not create this problem.

 Think clearly about this for a moment

Austerity” means your lives and your  children’s lives will be less free for decades. Since all nations are “in debt” then their must at its core  a group of private creditors benefiting from this situation.
Government’s everywhere have the moral right as representatives of the people to weigh and balance private citizens rights against those of a small minority of other citizens. . It is moral and right for the governments to identify the core group of private people hiding behind all the debt shell entities who are supposedly “owed” money by these countries citizens.Those citizens likely never voted for the debts anyway.

Austerity for millions is not an acceptable situation for for the ordinary Citizen why should he  recognize, take on the ill borrowed, non voted, “debts”  of others . Why is it the  politicians serve the interests of the  “creditors” rather than the people they are purported to represent.
Millions of people should not be forced into a lifelong form of loss of freedom (which is what “Austerity” really means on an individual level for each citizen) as a result of putting false debts unto the backs of their governments.

So folks time to get off your ass and make your Government work for you

Keynes, Balls, Austerity, and what Voters Deserve


Well Ed, Keynes might not have been on side..

Ed Balls’ recent announcement that Labour would prepare its Shadow Budget within Coalition spending limits came less than two weeks after the IMF urged George Osborne to slow the pace of cuts.

So why did the Shadow Chancellor meekly abandon his position just as it received tacit endorsement from an organisation that was hitherto austerity’s biggest cheerleader?

Keynesians were flummoxed. However, for all Balls’ indignation over austerity, Labour’s previous prescription was really just austerity-lite: they were still going to cut, just a bit more slowly.

Balls has recognised his limited room for manoeuvre. With the UK having lost its prized AAA credit rating in February, a slowdown in the pace of cuts – never mind a net spending boost – may ultimately increase the cost of borrowing and balloon the deficit further still.

The name of Keynes has been invoked by the Left to damn the austerity drive across Europe, while the Right ripostes that imprudence during the boom left the finances too fragile to countenance more stimulus spending.

Often overlooked is the fact that Keynes preached fiscal constraint in the boom times to leave a budgetary surplus to draw on when the economy contracts: “The boom, not the slump, is the right time for austerity,” he wrote 76 years ago.

Achieving a tri-partisan compact to pursue such policies seems a forlorn hope if you subscribe to the axiom that voters tend to vote for parties that spend heavily during boom times but lurch rightwards when the economy nosedives.

The rise of fascism is often cited as exhibit A: European trends have often supported this theory. With the debt contagion threatening to engulf the Eurozone, a wave of Rightist victories left only Belgium, Denmark, Austria and Slovenia of 27 member states with left-leaning governments by 2011.

The election of François Hollande in France and electoral breakthrough of Leftists in Greece has reversed the polarity somewhat, but we’re a long way from 2007 when 10 left-of-centre administrations held power in the Eurozone.

The undeniable hardening of opinion against benefit ‘scroungers’ amid the biggest squeeze on living standards since the 1930s further validates the theory that voters grow less receptive to social justice narratives when their own economic situation deteriorates.

But people don’t simply become hard-hearted.

Swing voters – because most voters are solidly right- or left-leaning regardless – often vote for parties whose spending patterns mirror their own when income rises or falls.

But it’s counterproductive, cry the Keynesians, for the state to emulate a private household’s eminently sensible approach. Cut spending on eating out by £100 a month and a household saves precisely £100 a month. Income is entirely unaffected.

Between government spending and income, however, there’s a feedback loop, the so-called ‘paradox of thrift’: slash public spending and you put people out of work, thus increasing the benefits bill and reducing income tax receipts. Rising unemployment reduces consumer demand and fewer public-sector contracts are available to private businesses – again stunting growth and reducing the tax take.

Perhaps, then, swing voter should defy their intuition and vote in governments that implement countercyclical spending policies – so parties of the right to ‘fix the roof when the sun is shining’ and then of the left to cushion the crash.

Canada, which turned a budget deficit of 9 percent of GDP into a surplus in just three years following a humiliating ratings downgrade in 1992, represents a good case study for countercyclical spending. Scarred by the early 90s recession, there was a bipartisan consensus to avoid deficits, so the Canadians were better equipped for stimulus spending when the 2008 crash hit. Canada has created more than 600,000 jobs since the slump.

Perhaps European governments should practice what they preach to Northern Rock and RBS, who are forced to keep greater reserves of capital to act as a safety buffer during unforeseen events. “When you have an extra kidney, you don’t have to predict the source of harm – whether it’s going to be a snake or cancer or whatever,” said Nassim Nicholas Taleb, author of the Black Swan, on Radio Four last year.

“Likewise if you have a lot of savings, you don’t have to predict the cause of the next crisis. But if you have debt, you need to be very accurate in your forecast of the future.

“To emulate nature, we could just say we don’t want government debt […] we want a surplus in the good years. It is completely immoral to stick your descendents […] with the cost of your mistakes. Even if debt is economically efficient, you’re not bearing the risk.”

Increased spending during downturns and retrenchment amid booms would surely result in a more serene economic cycle; lower peaks, sure, but shallower troughs too.

It seems an impossible utopia. Across Europe policymakers have coalesced behind a consensus that deficit reduction should trump growth spending. Meanwhile, the Tories berate Labour for its profligacy during the boom times, forgetting conveniently how David Cameron had promised before the crash to “share the proceeds of growth” between tax cuts and spending rises – which surely would have resulted in a similarly huge deficit.

It seems that neither the Tories nor Labour have the stomach to challenge voters’ understandable instincts over state spending, whether its indulgence of largesse in the good times or approval of self-defeating austerity in the bad.

One can hardly blame them: had the Tory Party advocated punitive cuts between 1997 and 2007 their trio of General Election defeats would surely have been far heavier.

In that sense, when it comes to boom and bust, it’s neither the fault of Labour nor the Conservatives – we, as voters, sort of get the economy we deserve.

That said, the correlation between voting patterns and the state of the economy doesn’t consistently fit this model if you examine UK electoral history.

Labour governments were elected during the 1930-34 and 1973-76 recessions, although the early 80s downturn ushered in Margaret Thatcher and the Tories also presided over the next contraction, between 1990-1993. The 2010 General Election, the first since the 2008 financial crash, again returned a Conservative Prime Minister, albeit the Tories failed to win a majority despite the incumbent Labour administration having presided over the worst slump since the 1930s.

Winston Churchill is often quoted – falsely, it transpires – as saying:

“If you’re not a liberal when you’re 25, you have no heart.  If you’re not a conservative by the time you’re 35, you have no brain.”

You might also tell swing voters that if they don’t lean right during a boom and left during a bust then they’re fuelling a boom and bust cycle (a less catchy saying, I know).

via Keynes, Balls, austerity, and what voters deserve – The Commentator.

The Negative Impact of Austerity on Public Health


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As the Greek government implemented austerity measures in response to a financial crisis, Greek suicide numbers doubled last year. And in London, tuberculosis rates grew by 8 percent from 2010 to 2011, a result of increased homelessness and drug use during the Great Recession. In “The Body Economic: Why Austerity Kills,” Oxford political economist David Stuckler and Sanjay Basu, an epidemiologist at Stanford University‘s Prevention Research Center, argue that austerity measures have public health consequences, including HIV outbreaks and increased rates of depression, suicide and heart attacks. The authors recently spoke with U.S. News about the relationship between fiscal policy and public health. Excerpts:

Why connect public health with austerity?

Basu: In the 1990s, there was an astounding series of studies that said, What if everybody had perfect health insurance? How many premature deaths in the U.S. among people less than 75 years of age could we prevent? And it turned out that the answer was only about 15 to 20 percent. The other 80 to 85 percent can’t be affected by medical care, meaning that health doesn’t start on the exam table in the ICU, but in our homes, in our neighborhoods, whether we smoke or drink too much, and the quality of our air, food and safety. One of the biggest determinants therein is the state of the economy and, in particular, whether we have safety nets during hard times.

How does austerity lead to a loss of life?

Stuckler: When effective services and supports that sustain health are withdrawn, they pose a direct risk. A clear example can be seen in Greece today. To meet the deficit reduction targets, the health sector in Greece has been cut by more than 40 percent. HIV infections have more than doubled as effective needle exchange program budgets were cut in half. There was a return of malaria after mosquito spraying programs to prevent the disease were also cut, covering the southern part of the country. Deep reductions of a pharmaceutical budget led several pharmaceutical companies to leave the country. There was subsequently a 50 percent increase in people reporting being unable to access medically necessary care.

What surprised you most in your research?

Basu: That there are some very well-researched, effective programs out there that can benefit both public health and the economy, but the academic research is so far afield from the public discourse. A lot of the discourse just assumes that the only way to reduce deficits is to cut budgets in the short term, and it’s quite hard to explain why that’s a bad idea and actually increases long-term budgets. That counterintuitive problem has created a lot of fallacies and makes it difficult to translate research into practice.

Do you expect to see public health consequences to spending cuts in the U.S.?

Basu: We already see them if we compare state-based responses to different kinds of unemployment crises since 2007. We can, controlling for pre-existing conditions, compare states that underwent more extensive budget cuts versus those that didn’t; and [we] saw a rise in suicide among those who were denied unemployment benefits.

Which current policies are most harmful to public health?

Basu: I think the indiscriminate cuts to safety net programs among the poor are particularly easy to implement and particularly dangerous for public health. [And] cuts to our nation’s best defense system against epidemics, the Centers for Disease Control [and Prevention] are particularly dangerous. We recently had the fungal meningitis outbreak, and without the CDC, it would’ve been hard to conceive of how we would’ve protected ourselves from having a dramatic expansion of that epidemic.

Are there any economic policies that don’t have daunting human costs?

Basu: In many areas of the world, we see pretty effective policies that simultaneously improve health and the economy. For example, in Sweden and Finland there are active labor market programs. They help enroll the newly unemployed into supportive job retraining and re-entry, and work with both firms and the newly unemployed. As a side effect, they seem to reduce suicide, depression and alcoholism, while also stimulating the economy and being, in some cases, net cost-saving.

Why should President Obama read your book?

Stuckler: The book shows that there is an alternative to austerity that’s grounded in evidence. And when governments pursue it, they can pave the way to a happier and healthier future for people. By making smart, evidence-based investments, not only is it possible to protect people’s most valuable asset – their health – but to chart faster economic recoveries and address fundamental threats of deficits and debt. A simple answer is because his choices and those of Congress are matters of life and death for millions of Americans.

via The Negative Impact of Austerity on Public Health – US News and World Report.

Why austerity theory is the economist’s atomic bomb


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ON August 6, 1945, America dropped an atomic bomb on Hiroshima, instantly killing 70,000–80,000 people and injuring another 70,000. The atomic bomb changed the world. President Truman promised a ‘rain of ruin’ would fall on America’s enemies if they didn’t surrender.

The chief architect of the atomic bomb project was a physicist, Robert Oppenheimer. Mr Oppenheimer had mixed feelings about his project. Initially, he was delighted that it worked at all.

Looking back, this relief is understandable. This was a world war in which millions had already died. The US leaders were sure Germany, Japan and Russia were also working on a nuclear bomb, so there was intense pressure to get the job done.

But after the bombings, Mr Oppenheimer expressed regret that the bomb had been used, citing a passage from Hindu holy book the ‘Bhagavad Gita’: “Now I am become Death, the Destroyer of Worlds.”

Others involved in the making of the atomic bomb saw it as a problem to solve, a part of the war effort.

While they were saddened by the deaths of tens of thousands of civilians, the scientists were justified in trying to find the answer to the question put to them by the politicians and generals. Their research was, to some extent at least, independent of what the research was used for.

It’s not atomic physics, but economic theories have the potential to alter the lives of millions of people.

The wrong theory, implemented as policy, can reduce the living standards of millions of people over time, and harm the development of generations of workers and their families. Take Zimbabwe, for example, where a hyperinflation has destroyed the nation’s wealth.

Or go back in time to the Meiji Restoration in Japan in 1868 when Japan modernised, opened up to trade, and eventually militarised itself by 1905.

The openness policy championed by the Meiji dynasty led to a huge increase in living standards for the Japanese people, and, not incidentally, led to the militarisation that would one day help push the Japanese into confrontations with other world powers.

Economic theories are powerful things, to be used and misused. Those who write economic theory and do economic policy need to be aware of the consequences of what they are doing.

Read last year’s budget documents. You’ll find Appendix F on the web. Appendix F is a thoughtful, careful analysis of the distributional consequences of austerity policies on the Irish people, showing exactly who has been hit by these policies, and by how much.

But at least those in power in Ireland are aware of the consequences of their actions.

Not so for other proponents of austerity, where their research is of the ‘fire and forget’ type, divorced from the potential impact of their research.

Economists who help satisfy the consensus view are often feted, whether they are right or wrong, and when they are wrong, they walk away unscathed. There is nothing wrong with being wrong: things change, and no one is perfect.

But when you’re wrong – or worse, when your work is being misused – I believe there’s an imperative to shout stop.

Another example: economists Carmen Reinhart and Ken Rogoff wrote a celebrated paper showing increasing government deficits harms growth: a country was likely to stagnate once its government debt-to-national output ratio exceeded 90pc.

Their finding implied deficit spending was bad, and because this fed a conservative need to reduce government spending through austerity, Mr Rogoff and Ms Reinhart’s paper was instantly adopted as gospel by the serious people in dark suits for this reason.

The paper was recently torn apart under serious scrutiny, but from 2010 to 2013, Mr Rogoff and Ms Reinhart made no attempt to modify their analysis or to chasten those who tried to use it for different means. Compare the Rogoff and Reinhart debacle with a recent example from Sweden, where one researcher, Jonas Himmelstrand, argued early childhood programmes increased the chances of mental health problems later on.

He cited a series of studies in his work. The author of one of the main studies was very quick to point out there was no substance whatsoever behind Mr Himmelstrand’s statement that a decline of mental health in young people in Sweden was related to daycare.

Eventually, those promulgating the notion of austerity as the only answer are going to be asked the same questions asked of the scientists on the project that birthed the atomic bomb: are you okay with how people have used your research?

Austerity is forcing millions to suffer needlessly. As unemployment rises and political realities force this to become a serious constraint on policy, austerity policies will be ditched. What will we have then?

Dr Stephen Kinsella is a senior lecturer in economics at the University of Limerick

Irish Independent

via Why austerity theory is the economist’s atomic bomb – Independent.ie.

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