austerity

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Boehner’s Demise

Losing John Boehner from his post as leader of the fractious Republican party in the House of Representatives marks another step in the slow attrition of the key figures who brought us this lingering economic malaise.

It was he, after all, that so clearly damned growing Federal expenditure and the consequent bulge in the budget deficit brought on by the 2007/2008 crisis. His simplistic argument was if households were tightening there belts in the face of crisis, so too ought the Federal government.

In the recent past this was about as clear a statement of erroneous policy that could be made.

Not only this but his institution of the “Boehner rule” whereby only that legislation garnering the support of his entire Republican caucus was to be brought to the floor of the House for a vote eliminated any hope for bipartisan action on key issues. His dogged avoidance of having to rely on votes from Democrats to pass legislation meant that only the most rigidly extreme of legislation was ever voted upon. His determination to have his caucus stand together opened him up to constant blackmail from the far right: since they were aware of the need for solidarity they could simply threaten to oppose him and thus force him to proffer only legislation they approved of.

Hence the endless stream of votes to undo, defund, and otherwise clobber Obamacare.

None of these extreme votes mattered because the Senate was marginally less extreme and, in any case, subject to all sorts of arcane in-house rules that gave minority membership – currently the Democrats – virtual veto power.

So Boehner’s all or nothing voting rule massively added to our slide into the stagnant bitter partisan quagmire we now find it so difficult to escape. The House legislative agenda became hostage to the small number of extremists that have now made Boehner’s life so difficult he has decided to step down.

What now?

I cannot but think we will slide further.

The mood of the country is sour. Neither party has offered policy prescriptions to deal with the steady decline in prosperity of the vast middle class that once was the economy engine of our consumption economy. As wages stagnated no one seemed to notice, worry, or care. If they did pay attention they shrugged the phenomenon off as some ‘natural’ outcome of the magical workings of the economy. Decline was, they argued, something that just happens when great waves of technological change attach themselves to the globalization of production.

So we were urged to suck it up and work harder. We were bullied into greater and greater effort to increase productivity. And then, when the rewards of that increased productivity were distributed to a very small class of people – those who own assets rather than those who work – we were told that those great forces of nature were unavoidable, and, more to the point, we were obviously lacking the right skills to flourish in this harsh new world.

Boehner has, in one role or another, been a constant player in this charade since I started writing this column back in 2005. His advocacy of the constant Republican anti-activist government mantra means his place in history is firmly on the side of the plutocrats. He one of them. He is not one of us.

His oftentimes baffled looks gave us all insight into the darker workings of his caucus. His brutal obstinacy enabled the rise of the contemporary extremist wing of his party. It is ironic that one of his most regular and vocal critics, Ted Cruz, is a creation of the drift into negativity that Boehner and his Senate cohort Mitch McConnell actively encouraged. And Ted Cruz is already dancing on Boehner’s grave, calling this moment a sea change for the better.

Look for ever more confrontation and bitterness. Look for even less legislative action. Look for more disillusionment on the part of the voters.

We have to fight on, but Boehner can now go and collect his fat paycheck as a lobbyist.

It is impolite to yell good riddance. I have to admit, though, I won’t miss him.

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Beating Dead Horse?

I am not sure I understand the point of Alexander Kaufman’s column in the Huffington Post. In it he takes Paul Krugman to task for being repetitive and talking about just there things: austerity is bad, inflation fears are overblown, and Keynes was right.

Well now.

Whether or not we have disagreements with Krugman – and I know many of you do – those disagreements pale in comparison with those we all have with the arguments of the people Krugman is targeting in his columns. Yes Krugman can be annoying with his emphasis on his version of the Hicks version of Keynes. But if it serves to get a vital message across to a public largely unaware of the internecine struggles within economics, so what? I don’t care. Nor should you.

And if he sounds repetitive, then we should ponder the reason: far too policy makers are still stubbornly clinging to disproven theories. Yes, disproven. So are far too many academics.

Policy makers, I think, may be less culpable because they are trapped within the political whirl that constrains rapid movement. That is, by the way, as far as I would go. Professional ethics have to come into play sometime. In a profession unique for its disavowal for the adoption of any formal ethical standards – the market will sort out the unethical? – we have to rely on the personal standards of the people involved in policy making. We thus remove from the public’s arsenal one very important weapon in ensuring that the economics profession serves it well.

And we are left with a more public version of the academic bun fight that characterizes economics more generally.

Economics doesn’t exist in any coherent form. It is simply a long established and ongoing discussion about various ideas many of which have been kicking around for centuries. Indeed many of the profession’s core ideas were established long before our contemporary economy emerged, and sometimes they have to be bashed into shape to remain relevant.

Given the enormous egos involved it is thus hardly surprising that economists whose ideas have suffered defeat in the real world don’t abandon them, but simply crank up the volume and shout loudly about those ideas they don’t like.

Worse, since economics supports many and often diametrically opposed narratives, and since we appear to be stuck in a long war of deep ideological significance, it cannot shock anyone that the many sides of economics are played and replayed many times. These the repetition that Krugman is accused of.

I have often used World War I trench warfare metaphorically when talking about economics. The entire enterprise seems stuck in trenches lobbing diatribe back and forth determinedly with no side going much ground if any at all.

But perhaps a better version would be that economic ideas are part of the ammunition being flung across the field from trench to trench. Economics is just one aspect of the great ideological battle. And economists are driven, not by a sense of science, but by their own ideological perspectives.

Thus the quaint libertarian refrain: “markets good, governments bad”. Or the willingness of the Marxists to see the world in terms of a teleological historical narrative despite the modern emergence of democracy and the apparent error at the center of their vision.

Pragmatists will always be squeezed from either side by their more zealous peers. They don’t, after all, subscribe as deeply to the various utopias that so motivate the zealots, and they can be called craven for daring to change their minds periodically. I put Krugman in this more pragmatic category. He seems quite comfortable with slipping from idea to idea depending on the circumstances. That’s his strength. Quite a few people don’t like it because it smacks of a lack of ideal or principle. But flexibility is a principle. One that I quite like.

So when someone like Krugman gets stuck in a rut and appears to be repetitive in his commentary, I think it quite likely that it is because the context for his thinking remains similarly stuck.

And so it is.

Even after all these years since the great crisis, and even after the evident failure of so much policy, we are still mired in the same debate.

 

It is juvenile to think that we need to stop saying the same things just because the public might get tired of listening. What else are we supposed to do?

When we are stuck in the trenches we have to keep slogging away. Because to stop is be defeated. Yes I would prefer more movement and progress. But given the stubborn and committed nature of our opponents all we can do is match their stubbornness with ours.

And so it goes.

Austerity is still wrong. Inflation fears are still overblown. And Keynes is still right.

So why not keep repeating that?

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Spanish Triumph?

It’s all a bit annoying. Really. I have just read the Economist’s article about Spain. The article is titled “Back on its feet”.

Such a title might lead you to imagine that the article is about a triumphant return to prosperity. But no.

Instead we are told that unemployment is down to 22.5%. This is down from a peak of 26.3% back in 2013. Growth, we are told, has ‘sparkled’: it rose to an annualized rate of 3.8% in the first quarter and rose again a little further in the second.

Wow.

These are the fruits of severe austerity. They are ‘the vindication of reforms’ the right of center government put in place in 2011.

Double wow.

One of these reforms was to shake up the labor market by making it easier to fire people and to tear down the divide between full time employees and their temporary co-workers. Presumably this reform was designed to instill fear into everyone and to turn them into quasi-part-timers. In any case it worked: just look at that amazing unemployment figure of 22.5%. Only 22.5%!

What a triumph.

Other efforts have slashed corporate taxes from a whopping 30% to a new low (in 2016) of 25%. Further reforms have slashed red tape and made it easier to set up a business. So if you have been unemployed for years you can now start your own business. If, of course, you have any money left to use as start-up capital.

These reforms have seen Spain shoot up the most important table of all: the “ease of doing business table”. Spain now ranks 33rd in the world (out of nearly 190 economies) rather than languishing down in 52nd where it was before all theses amazing reforms.

Go Spain!

At the end of the article we hear something about theses reforms being pretty much irrelevant and that the real problems all had to do with something called a financial crisis and bailing out private sector banks. But we all know that’s not important.

No. What’s important are those structural reforms.

After all they have slashed unemployment! It’s only 22.5% now.

Of course Spain is back on its feet. What economy wouldn’t be buzzing along if its unemployment rate was a mere 22.5%?

Sorry Economist: the story is one of disaster not triumph. It is of lost lives, lost hopes and lost dreams. And those ‘reforms’ are like the leeches of yesteryear: they are the product of economic theories that lack an understanding and empathy for real people.

Let’s all hope that our Spanish friends are tough enough to withstand the damage inflicted by the cure being thrust upon them. And let’s all hope that one day these reckless and violent cures are seen for what they are: inhuman evil.

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Greece 2

Well so much for that.

Where do I begin?

The so-called deal announced yesterday achieves none of its objectives. The written objectives that is. The unwritten ones we will get to in a moment.

There is no doubt in my mind that the Greek economy suffers from a surfeit of inefficiencies. It cannot sustain the social edifice erected on top of it without ridding itself of the multitude of privileges that various groups have accumulated for themselves through time. Greek government has been, for many years, a source of patronage and protection of a slew of inside deals that wreak havoc on those – the majority – on the outside.

I am sure this systemic problem must irk everyone living further north.

But.

Clearing out those problems now is not the priority. Saving Greece is. Saving Greek democracy. Saving those who have no access to the myriad schemes and deals that enrich the minority.

That was what I understood the left wing governing party to stand for.

What I did not understand that the Greek government apparently had no viable plan ‘B’. It made no serious effort to put an plan for an exit form the Euro. It had no idea of how to execute the issuance of an alternative currency.

Or so it seems.

So the Greek government entered this fight without heavy weaponry. It was bound to fail. It had to capitulate.

And what a capitulation it was. Yanks Varoufakis is calling it a new Treaty of Versailles. From what I can see, he is right. The deal is a disaster for Greece. It assures the destruction of whatever is left of the Greek economy. It will prolong, for many years if not decades, the stagnation and steady decline that has set in since austerity was forced on it. It will stir up political and social unrest. It will push the Greeks into a marginal and subjugated existence at the whim of technocrats and politicians who, apparently, used last weeks referendum result as a reason to execute what amounts to a coup. They have seized control of the financial operation of a sovereign nation.

Why?

To avoid a hair cut on the outstanding debt. A haircut that still seems inevitable.

Now for those unwritten objectives.

Sometime this weekend this became an exercise in punishment, in the extraction of reparations, and in the public humiliation of a democratically elected leader. This deal cannot have been about anything economic: it is manifestly a grossly foolish and viciously constructed error if it is. The Greek economy will not thrive under the boot of the Troika. This deal is not intended to resuscitate the Greek economy, it is intended to make an example of it.

The deal is, in effect, a demonstration of raw power. A kind of scorched earth, burn-down-the-villages, and round-up-the-citizens exercise designed to teach a lesson. It is a return to the pre-European Union realpolitik that so ruptured and ruined the continent in the early twentieth century.

It is an embarrassment and a humiliation for the Greeks, but more so for Germany and it enablers. The Germans have cast themselves backwards morally, they have stripped away all pretense and revealed an ugly truth about themselves: they see no “union” in the Eurozone, they see no equality, and they brook no democracy.

For months now Merkel and her aides have talked about their lack of “trust” in the efforts being made by the Greeks. Now the worm has turned. It is Germany whose intentions, motives, and words engender no trust. From the deliberate leak of German documents to the vicious behind the scenes campaign to eject Greece entirely from the Euro, no one can doubt that this was an exercise in old fashioned power politics.

Someone needs to write a new version of “The economic Consequences of the Peace”.

Europe is no longer a stable union, it is fractured and exposed as undemocratic. Greece is a virtual dominion living under constant threat with its assets pawned so as to save foreign banks.

This is a very bad day indeed.

 

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Greece

So we reach the end. Good. Let democracy and popular government prevail. The entire Euro project was conceived by a small group of elitist technocrats, then foisted on national peoples often without any ability on the part of the people to veto it.

The crisis in Europe is an echo of the crisis here in the US. America’s banks went on an unsustainable binge of greedy excess. They generated, accumulated, mixed, and then sold mortgages in an ever increasing frenzy driven by the knowledge that as long as they moved the pile fast enough they could reward themselves handsomely and not suffer the consequences of their descent into the depths of outright fraud.

And it was a fraud.

Maybe not in the narrow and legally provable sense, but in the broader and more applicable ethical sense. The banks sought to rip us off to enrich themselves. They knew how compliant our governments all were. They knew that, in the end, they would be bailed out. So there was never a brake on their acceleration over the edge.

This we all know. All except, apparently, for those few who cling to the delusion that it was the US government’s fault for “forcing” the banks to lend to marginally creditworthy borrowers in the name of some equality program. This trope still pops up now and again. It is utter rubbish, but serves to fog up the post-crisis debate just enough that we have never sought proper compensation from the banks. They still exist, absent one or two of the real fringe players, and are bigger and more dangerous than ever.

So the sudden realization that all that highly rated paper spewing from the Wall Street spigot, was just toxic junk, overturned the world’s finances. The Euro zone immediately fell into disarray. Its banks had gathered debts with reckless abandon and needed help. That help took the form, by and large, of moving the debts from private balance sheets onto public balance sheets. Meaning the taxpayers and not shareholders were now responsible for piles of useless assets that they had no responsibility for creating.

Add in the burden of providing support to those thrown into unemployment by the inevitable recession the bank crisis gave life to and government budgets everywhere were thrown into disarray. Debt piled up.

So governments suddenly faced their own debt management crises. And true to the immutable laws of capitalism, the bankers began to decry the increasing piles of debt accumulated from their own vice. Those bankers and their friends in orthodox economics began to talk ominously of impending confidence crises wherein nations would be unable to access the credit markets and so continue to fund the recovery from the bank induced horror.

The ratio of debt to GDP, we were told, had risen to crisis levels and needed to be reduced. Instead of increasing GDP the advocated approach was to reduce debt.

Now any fool with even a modest education could have understood that reducing debt ratios by cutting spending would also cut GDP meaning that the risk was high that the ratio might never fall even with substantial cuts. Worse: the risk was higher that cuts would actually reduce GDP faster than it would allow debt to be reduced, thus the ratio would deteriorate.

But that doesn’t happen in orthodox textbooks. And it doesn’t fit the banker’s narrative.

So austerity was invented and doomed to fail from the beginning.

You and I told them so, but you and I don’t count. The voice of democracy has been stifled. Popular government has been subverted and re-tooled as government for the benefit of a few.

And they want to be repaid. Despite having started the crisis. Despite having made bad decision after bad decision. Despite being so-called “experts” at risk assessment. Despite the 25% unemployment. Despite the 25% decline in GDP. And despite the humanitarian catastrophe that their greed unleashed on perfectly innocent people.

That a whole slew of north European politicians have cast their lot with the bankers is testimony to the grip that plutocracy and economic orthodoxy have combined to exert. It is an insanity. It is a delirium from which Europe, or rather the Euro project, probably will not recover.

Deservedly so.

When you ask an orthodox economist what a market is comprised of they rarely mention people. When you ask a banker what constitutes a debtor nation they will not talk about human beings. They do not care about real lives. Or real consequences. Reality in all its manifest aspects is expunged from their respective analyses. Instead they speak in a language specifically constructed to dehumanize their thoughts. This is to protect them from the ethical responsibility for their ideas and actions.

Well no more. Maybe.

Democracy has spoken up.

Let us not rejoice just yet though. There is work to do.

The Greeks have resisted more plunder. But can they rebuild?

I hope so.

 

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