Are We There Yet? Part Two
Are we there yet?
As in our economies are growing again
No. And the likelihood we will arrive at that point any time soon is diminishing. Austerity is preventing it.
Austerity is the enemy of growth when an economy is down and out. Cutting government spending at such times makes matters worse, not better. That much we know.
Or at least some of us know. Others, not so much.
Take thelunatic person who is finance minister of Germany, Wolfgang Schauble.
His Op-Ed in today’s Financial Times is a perfect example of what not to do in a depressed economy. He advocates unmitigated, unrepentant austerity. Right across Europe. No matter how bad things are.
It’s good for the soul. It’s good for creditors. It’s good … for no one else. In fact it will ensure that tens of millions of Europeans have impoverished futures, no jobs, and unnecessarily hard times.
The man is a menace. A serious menace.
His lust to inflict punishment and hardship in the near term so that some miraculous medium term can be conjured from thin air by some magical wave of the confidence fairy’s wand is stunning. It is stunning in its lack of compassion. It is stunning in its simple minded determination to avoid sensible policy. And it is stunning in its outright capitulation to disproven and discredited theory.
So let me take this opportunity to say it out loud: there is absolutely nothing, as in nil, zero, nada, and zilch, expansionary about austerity policies when an economy is stagnating or languishing with interest rates near zero. Nothing. Getting government borrowing off the backs of the credit markets is, maybe, something to worry about when those markets have a life. Or when business is not flush with cash, as it is now. The so-called ‘crowding out’ effect of government borrowing simply does not exist under the circumstances we find ourselves in. Risk aversion, fear, and near panic prevent the private sector from coming alive. That creates lack of demand. Lack of demand stops job creation. So solving the fear, reducing risk, and getting demand back to life is the best medicine we have. At least it’s a medicine based upon a theory proven to have worked in the past.
Austerity relies on magical forces, supernatural interventions, and a sort of divine providence best kept for Sunday afternoon sermons.
Yet here is the German finance minister spouting such nonsense in serious, august, tones as if it were the only way forward.
Note his sweeping certainty. Note his dismissal of demand as a factor. Note the absolute way in which government debt is seen as the biggest issue. Notice how the entire argument hinges on confidence. Apparently consumers and business leaders lack confidence because, and only because, government debt has surged as governments spent to fix the problems of consumers and businesses. In other words the temporary blip – albeit a mighty big blip – in government debt caused by a collapse in the private sector, needs to be fixed, not by energizing the private sector, but by draining it of whatever support it is currently getting.
In other words we need to apply the leeches a little bit more. Drain some toxic blood. The patient will feel more confident when we batter away at the demons and ghosts.
Please.
Talk about a total denial of fact.
Apply the leeches.
That’s a modern approach.
Ugh. And he’s a finance minister?
