The Elder Keynesian Krugthulu arises from the depths of Lost Decade, shrill but dreaming, not to bring madness, but to end it! Ia! Ia ftaghn stimulus!
Last week the European Commission confirmed what everyone suspected: the economies it surveys are shrinking, not growing. It’s not an official recession yet, but the only real question is how deep the downturn will be.
And this downturn is hitting nations that have never recovered from the last recession. For all America’s troubles, its gross domestic product has finally surpassed its pre-crisis peak; Europe’s has not. And some nations are suffering Great Depression-level pain: Greece and Ireland have had double-digit declines in output, Spain has 23 percent unemployment, Britain’s slump has now gone on longer than its slump in the 1930s.
Worse yet, European leaders — and quite a few influential players here — are still wedded to the economic doctrine responsible for this disaster.
For things didn’t have to be this bad. Greece would have been in deep trouble no matter what policy decisions were taken, and the same is true, to a lesser extent, of other nations around Europe’s periphery. But matters were made far worse than necessary by the way Europe’s leaders, and more broadly its policy elite, substituted moralizing for analysis, fantasies for the lessons of history.
Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did.
Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending.
Just as the financial crisis, the housing depression, and the Great Recession should have doomed Laffernomics and the notion that tax cuts cause growth through, you know, bloody reams of empirical evidence, so should the notion of austerity as a solution to the problem be laughed out of this universe and every other. Of course, austerity was never the “solution” to the problem of the 2008 crash, it’s the “solution” to the New Deal and the decades of classic liberalism that followed. Republicans want to “solve” it. The stimulus was too small to fix the problem fully, but it certainly saved our asses. The GOP says “we’re on the path to Greece!” We would be on the path to Greece now under them, and that’s what they want. Makes it so much easier to cut, cut, cut.
And so to the Mountains of Economic Madness the Austerians head, hoping to take all of us with them for “shared sacrifice”. But Mighty Krugthulu knows the way through…
The point is that we could actually do a lot to help our economies simply by reversing the destructive austerity of the last two years. That’s true even in America, which has avoided full-fledged austerity at the federal level but has seen big spending and employment cuts at the state and local level. Remember all the fuss about whether there were enough “shovel ready” projects to make large-scale stimulus feasible? Well, never mind: all the federal government needs to do to give the economy a big boost is provide aid to lower-level governments, allowing these governments to rehire the hundreds of thousands of schoolteachers they have laid off and restart the building and maintenance projects they have canceled.
Look, I understand why influential people are reluctant to admit that policy ideas they thought reflected deep wisdom actually amounted to utter, destructive folly. But it’s time to put delusional beliefs about the virtues of austerity in a depressed economy behind us.
The evidence against austerity keeps piling up, but of course austerity for the 99% to benefit the 1% is the point in and of itself, and it always has been. That’s the abyss they want to throw us into.