There's nothing new about austerity. It's a program of lower deficit spending, reduced government expenditure, and debt reduction. This is a part of a program that goes by another name. Neoliberalism. Neoliberalism came to be associated with policies dubbed the Washington Consensus.
It's been tried in many places. In the 80's countries in Latin America attempted to install governments that expanded social spending, income redistribution and the like. Basically the opposite of austerity. The response was a terrorist war and imposition of thuggish governments that did in fact impose the Washington Consensus. In Haiti the people attempted to install Aristide. Once again he advocated progressive economic policies. He was ousted and replaced by a World Bank official that retained the austerity type programs. The failure of these methods is obvious.
But let's suppose you're not a history buff and you're unaware of this. That's fine. Take a look at the places where austerity has been implemented since the turn of the century in Europe. It's places like Ireland, Spain, Italy, and Greece. How have they performed since their austerity measures? About as bad as could possibly be conceived.
Not every country has gone that path. Take Iceland. The movie "Inside Job" used Iceland as it's initial focal point. The reason is because it was just that bad. The failure was so big that a bank bail out wasn't even an option. So they had no choice but to tell creditors to take a hike. They in fact expanded the social safety net. Once again the opposite of austerity. They're one of the few European nations doing rather well.
Precisely the same thing happened in Argentina. In 2001 they defaulted on debt. Rather than bailing out the banks (rewarding the rich) and repaying that by punishing the poor (implementing cuts in social services) they did the opposite. Screw the creditors. Expand the welfare state. The result? An economy that is growing like gangbusters.
What else would you expect? Impose Haitian and Latin American economic models on countries and those countries go straight down the crapper just like Haiti and countries in Latin America did. It doesn't work. We've known it doesn't work for decades. We're learning again as we watch even 1st world nations now falter.
But it's not just that it doesn't work. It's unjust. It's a reward to the rich for their abuse paid for by the poor. Mark Blyth, professor at Brown University explains why.
14 comments:
Dude, your way off. But before I dig in, let me make sure I understand you. A few questions:
1. Are you arguing that neoliberalism requires austerity during recessions?
2. Are you arguing that Spain, Italy and Greece really met the austerity and neoliberal model???
3. Are you arguing that these countries should have instead followed Krugman's advice? Even MORE spending?
I mean, if anybody met the austerity measure in Europe, it's probably Germany, and they happen to be the backbone of the whole european economy. But I'll let you answer before I jump in deeper.
Oh and, you know that I completely disagree with your characterization of Haiti etc. Defining it as neoliberal is a convenient fantasy in your head and bares no objective connection to reality - no matter how much your movie directors and linguists tell you otherwise.
Oh and, btw, I should point out that I say all of this as someone who is in fact, a neokeynsian of sorts. So I dont necessarily disagree with everything you said - just trying to tone it down some.
1-No. Neoliberalism is put forward as a pro economic growth regime. Balanced budgets, reduced government overhead, lower taxes, tariff reductions. Austerity is a small piece of that program. Right wingers always want balanced budgets and they pretend it always helps, whether we are in a recession or not. Now we've had a crisis so they once again pretend that we need to balance the budget, but not by raising taxes. By cutting services to the poor.
2-Not sure what you mean with "met the austerity model" and then three full question marks like it is baffling that I would think this. What I think is what my source indicated. These countries have pursued an austerity response. This is why places like Ireland are put forward as a model for success by the right whenever they have a blip in GDP, as you did recently. Then the next month comes and they are back where they started and the right goes silent. "Meet the model" may mean produce a good outcome or reduce deficits. But it doesn't work because when they impose austerity they drive the economy further down, which can increase a deficit.
3-I think there should have been more spending on the poor and less on the rich. That was Iceland and Argentina's response. Tough medicine for wealthy bankers, but good for the economy overall.
Let's suppose I were to describe for you a country that had the following policies:
- Limited tariff restrictions
- Limited government regulation
- Low tax burden
- No real minimum wage
- No state meddling in the economy
- No state funded development
- No restrictions on capital movement
- Schooling is almost exclusively for profit
What would you think the economic prospects would be for a country that's been implementing these policies for decades? Pretty good, right?
Of course what I've described for you is Haiti. These policies follow a neoliberal paradigm. You can dismiss the evidence with talk of movie directors and linguists (which movie directors do you have in mind?) but what you can't seem to do is refute my claims on the merits. Linguists can make truthful claims. In truth though I didn't get any of this from Chomsky, but pretending I did is a useful means of avoiding the issue.
Okay - that sounds better.
Let's clarify it further: in your post (as opposed to your comment response), you don't single out Ireland. You grouped Ireland with Spain, Italy and Greece. Are you saying they (Spain, Italy and Greece) have followed an Austerity model as well???
Oh and, one more question: where does Germany fit into all of this?
And about Haiti, we don't disagree much on the requirements, we disagree on how far they actually implemented it. I have shown you multiple objective sources arguing otherwise (various freedom indexes, IMF indexes, World Bank, etc). But you ignore them. Seriously.
So lets rehash this a bit: I say Haiti didn't implement many of said policies based on, say this.
You disagree based on what?
Are you saying they (Spain, Italy and Greece) have followed an Austerity model as well???
It's the triple question mark again, like it's a crazy position. Yes, Spain, Italy, and Greece have followed the austerity path.
Oh and, one more question: where does Germany fit into all of this?
You tell me. I didn't raise Germany. Just Googling it though it looks like they passed an austerity package rather recently. Forecasters now predict a drop in economic performance, whereas before passing this package they were expecting higher growth rates. But that's just me spending a few minutes on Google. Do you have other info?
Regarding Haiti, of course I addressed your Heritage rankings. Addressing another set of rankings is a project in itself. But briefly regarding the "Ease of Doing Business" ranking I'll say that of course it is tough to do business in Haiti. But that doesn't change the fact that they follow a neoliberal regime. Neoliberalism is bad for business. Not in the short term, but in the long term. Slash public schooling and health services and business enjoys short term profits. But long term things get bad. Same is true when you slash wages. Poor people that are near starvation don't educate their own children, so future generations are even worse. Here's a quote from the Wiki entry on Haiti's economy. These kinds of things harm business, and it's straight on right wing policies right out of the World Bank and IMF playbook.
"the country's economic agenda included trade and tariff liberalization, measures to control government expenditure and increase tax revenues, civil-service downsizing, financial-sector reform, and the modernization of state-owned enterprises through their sale to private investors, the provision of private sector management contracts, or joint public-private investment. Structural adjustment agreements with the International Monetary Fund, World Bank, Inter-American Development Bank, and other international financial institutions aiming at creating necessary conditions for private sector growth, have proved only partly successful."
So Haiti implements World Bank recommended measures. They continue in desparate poverty as before. So then the World Bank tells them they're doing it wrong and they should implement pro business policies. Isn't that what they've been doing? They're implementing your recommended policies.
I just picked one measure from "Ease of Doing Business". They rank Haiti really low because supposedly they have burdensome taxation. They say 40% on corporate profits, which is sort of high. But what are profits? If I send in cotton and take out pajamas but I sell nothing to Haitians, how much profit have I earned? And hence how much taxes will I pay? Take a look at Heritage and you'll see that Haiti collects about 10% of their meager GDP in taxation. This is not only a tiny dollar amount. It's tiny as a % of GDP compared to other nations. So fine, they have a high rate on profits for outside investors. But apparently these companies don't make any profit in Haiti, so they don't have to pay anything. It's going to be tough for a local guy that tries to run a business and sell stuff to Haitians, but naturally the World Bank doesn't really care about that.
Are you really going to nitpick how many question marks I use too? Wow dude. You have some serious pet peeves! Maybe in the future I could send you a rough draft of my posts before I post them and see if they pass muster? :-)
Regarding the post in general: the gains from my "ask and wait and see" approach are paying off. We don't disagree quite as much as I had initially assumed.
So if I understand you correctly, you are saying that Spain, Italy, Greece and Ireland followed an austerity plan from the recession onward - not that this was something they had followed during "normal" times (which gets back to my question #1).
If your answer to that is yes, then yes, we agree. Now the Germany question isn't as important. Of course I agree that in times of recession, austerity would make things worse. Now let me ask you a preliminary question: do you agree with Krugman's recommendations that they should have pursued MORE fiscal spending (make sure to look at where they were before the recession, on spending as a % of GDP before you answer) as a solution to the problem?
Regarding Haiti, nice bait and switch: first, I actually brought up the World Bank, IMF, Heritage, and Fraser institute in that post as well. Look at my first comment. One thing to notice is how well they all seem to match. Not a big difference. Now take what they say as a consensus, as independent bodies, and compare it with your view of the world - quite a stark contrast.
Second bait and switch, you write: But briefly regarding the "Ease of Doing Business" ranking I'll say that of course it is tough to do business in Haiti. But that doesn't change the fact that they follow a neoliberal regime.
But look at the index Jon. It is an index roughly the same as the neoliberal formula. Free trade. Regulations. Property rights. Taxes. Judicial system. etc. In other words, if you score low on the ease of doing business index, chances are you score low on a neoliberalism ranking as well. The two metrics are very similar.
Regarding the wiki link, there is no contradiction. Haiti has made SOME reforms. Nobody is denying that. But even with those, it still puts the country at roughly the neoliberalism as, say, Zimbabwe. Not very high. (ANd really, Haiti can be seen as a unique case all on its own, as its history of coups, natural disasters, colonialism - damn French were one of the worst! - and even slavery, make it a very complicated situation - no matter what the economic policies)
Regarding the Ease Of Doing Business index, it's interesting that you chose paying taxes as your example to nitpick on. After all, their ranking on "Starting A Business" or Government red tape or Property Rights or almost ALL of the other categories are WORSE - and yet, fall right in with neoliberalism. In fact, it's "Paying Taxes" categories is one of Haiti's LESS problematic areas. Please, see for yourself.
So Jon, I asked you a specific question to which you have not answered. PLEASE answer this time. I claim that Haiti ranks low on neoliberalism rankings based on the World Bank and IMF. You don't like that? I can show you Canada's Fraser Institute (see here). Still complaining? I can show you the "Global Competitive Report" made by the World Economic Forum, which, again, shows the same thing (see here). Or we can go to the CATO institute of Heritage Foundation. All roughly saying the same thing.
These are all verifiable objective resources. They can be challenged. Economists from all over the world review them. They have atleast SOME scientific backing. What do you have to counter offer? And please, no linguists or movie directors allowed!
Regarding the post in general: the gains from my "ask and wait and see" approach are paying off. We don't disagree quite as much as I had initially assumed.
Awesome. So we've avoided arguing about misunderstandings. Nice.
you are saying that Spain, Italy, Greece and Ireland followed an austerity plan from the recession onward
Yes, precisely.
do you agree with Krugman's recommendations that they should have pursued MORE fiscal spending
You mean following the 2008 crash? Yes, I think the stimulus should have been larger, with much less spent on repaying creditors and more spent on actions that help the 99%.
I actually brought up the World Bank, IMF, Heritage, and Fraser institute in that post as well. Look at my first comment. One thing to notice is how well they all seem to match. Not a big difference.
OK, but step back a second and consider this question. Heritage is of course a right wing think tank. That is, their money comes from their ability to further right wing policies. They're a corporate front group (part of the Koch foundation). The World Bank's job is to implement the Washington Consensus. They've run Haiti for years implementing the policies I described. Tariff reduction, tax reduction, regulation reduction, freedom of capital movement, etc. Fraser is another Koch front group.
You offer all these sources that all come from precisely the same perspective. Not just right wingers. Extremist right wingers. They say Haiti's problems are they don't follow right wing policies. But these groups have an incentive to see it that way. Why do you say these are objective sources?
I looked at Heritage. It's bogus. I didn't look at every measure from the World Bank because I don't have a means of checking. I do have a means of checking on taxes. It's bogus.
What do I have to counter these right wing think tanks and institutions? All I have is the facts I point to. In Haiti the leftist is elected and he's replaced by a WORLD BANK OFFICIAL. After that official's policy's are implemented and the economy is in tatters the World Bank and all the right wing think tanks have the gall to tell us that their problem is they are not right wing enough. "You deviated from the right wing ideal. You're not perfectly free market." But nobody is. And when you implement right wing policies you expect free markets to be undermined in some ways.
World Bank says it's not easy to open a business in Haiti. That's not surprising. That's neoliberalism in practice. See, when you make conditions ideal for big business what does big business do? They make it very difficult for competition to emerge. Hanes and Levi Strauss don't want others to be able to open a competing business. So the World Bank implements policies for the benefit of Hanes and Levi-Strauss. These companies use their influence to undermine free markets in a way that benefits them. And then the World Bank turns around and says Haiti isn't free market enough.
So in a sense I agree with the World Bank. It's not like there's a lot of economic freedom in Haiti. That's because Haiti has implemented neoliberalism. Neoliberalism is selectively applied freedom. Freedom for the rich.
Just as I said before, I have independent verifiable objective resources that can be challenged. Metrics that economists from all over the world review and have atleast SOME scientific backing.
And you have anecdotes. It's not even a fair discussion.
Koch funded groups are not independent and objective in my view. There is our disagreement. If you don't have to address evidence, but instead can just claim that the conclusions of right wing think tanks are the gold standard, then I'm going to lose the debate.
Yes Jon, the World Bank, the IMF, and all the others are all just right-wing organizations out to control the world.
Even though basically all economists read their rankings, they publicly publish their findings, and are verifiable - they all just don't know as much as your "sources" do.
Oh and, evolutionary biologists really just hate Christians! Oh and, global warming scientists really just want control over the masses! Oh and...yeah, same old story.
First of all, economics is not science. You pretend it is, but it isn't.
Second, I haven't said I totally disagree with the World Bank. They don't have economic freedom in Haiti. It's probably hard to open a business. That's because they have neoliberalism. A free hand for corporations means policies are installed that limit freedom.
You are erroneously extrapolating from this that Haiti and Latin America have left wing economies. No tariff restrictions. Inconsequential government sponsored social programs. Few protections for workers. Destroyed unions. This is left wing economics in your upside down world. Haiti and Latin America tried again and again to have leftist governments. The idea that left wing governments were overpowered, right wing governments were installed by force, and these right wing governments then implemented left wing policies is ridiculous. That's the grandest conspiracy theory of all.
Jon, I haven't said I totally disagree with the World Bank. They don't have economic freedom in Haiti. It's probably hard to open a business. That's because they have neoliberalism.
You can't have it both ways Jon. They don't just say Haiti etc are hard to open a business in. They give reasons WHY - and they claim that it's precisely because of a lack of neoliberalism policies.
I can understand why you don't want to disagree with them, but either agree with them or you dont, and if you do - you have to take into account their rationale.
You also write, First of all, economics is not science. You pretend it is, but it isn't.
I gotta give you credit man, you atleast freely advertise your ridiculous views. :-)
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