Paul Krugman has again been making some apposite comments on the EU economic crisis. First he slams Olli Rehn for being an ideological neo-liberal contemptuous of French democracy and with no real interest in furthering economic recovery in the EU:
The Austerian Mask Slips – NYTimes.com
Simon Wren-Lewis looks at France, and finds that it is engaging in a lot of fiscal austerity — far more than makes sense given the macroeconomic situation. He notes, however, that France has eliminated its structural primary deficit mainly by raising taxes rather than by cutting spending.
And Olli Rehn — who should be praising the French for their fiscal responsibility, their willingness to defy textbook macroeconomics in favor of the austerity gospel — is furious, declaring that fiscal restraint must come through spending cuts.
As Wren-Lewis notes, Rehn is very clearly overstepping his bounds here: France is a sovereign nation, with a duly elected government — and is not, by the way, seeking any kind of special aid from the Commission. So he has no business whatsoever telling the French how big their government should be.
But the larger point here, surely, is that Rehn has let the mask slip. It’s not about fiscal responsibility; it never was. It was always about using hyperbole about the dangers of debt to dismantle the welfare state. How dare the French take the alleged worries about the deficit literally, while declining to remake their society along neoliberal lines?
There was a time when France was proud enough to stop such idiotic meddling in its affairs: Is there nothing that Olli Rehn can do or say that might get him sacked?
Next Krugman weighs in against the idiotic “recovery” narrative currently being spun by the Commission and the Cameron/Osborne Government (and no, I have not forgotten that the LibDems are supposed to have some input too…)
As Simon Wren-Lewis says, if some positive growth, eventually, means that your policies have been successful, then a policy of simply shutting down half the economy for a year or two, then letting it start up again, is a smashing success.
—<snip>—
So the claims of success coming from both the European Commission and now from Cameron/Osborne are deeply stupid — but that doesn’t mean that they won’t gain traction. And as a political matter, bouncing dead cats can work very well. Combine Wren-Lewis’s thought experiment about shutting down the economy with the substantial political science evidence that elections depend not on the level of income but on its rate of growth in the runup to the election, and you conclude that from a sheer political point of view gratuitously depressing the economy for the first half of your term in office can be a very smart move.
We can see the same dynamic working in Germany: Despite years of austerity and depressed growth, Germany seems likely to re-elect Merkel on the back of some slow and belated glimmers of economic growth in the last few months of her term. In another post, Krugman ascribes this to The Soft Bigotry of Low European Expectations – NYTimes.com
It really is kind of pathetic to see European leaders claiming vindication after one whole quarter of positive growth, at the thrilling annual rate of 1.2 percent. Just to say the obvious: when you’ve suffered a huge hit to output and employment, you’re supposed to have a long period of fast growth to make up the lost ground. Otherwise you’re making the definition of success way too easy.
To illustrate my point, here’s a comparison I’ve been looking at. It’s between Latvia — which is the closest thing we have to an actual austerity success story, since it has been growing fast, even if it’s still far below pre-crisis levels — and another country, which isn’t Latvia. Here’s the chart:
Two big success stories, right? But who is Not Latvia?
Well, it’s the United States from 1929 to 1935; data from the Millennial Edition of Historical Statistics of the United States (Latvia data from the IMF). Strange to say, most of us think America was still living through the Great Depression in 1935.
So Europe’s biggest neo-liberal success story is actually faring considerably worse than the USA during the Great Depression – a time universally perceived as the low point of 20th. century capitalism. How could our expectations of what our leaders should do have been lowered so much? How is it that the architects of the greatest economic failure since the Second World War are still in office, never mind quite likely to be re-elected/re-appointed?
Krugman laments that European policymakers excuse the EU’s awful performance on the grounds that it is wrong and unfair to compare current performance against the hugely inflated bubble economies that existed prior to the crash. However this excuse fails rather miserably when one compares Ireland’s performance to that of Thailand post crash:
The Baht and the Bubble Excuse – NYTimes.com
In any case, Asia from 1997 on provides a useful comparison. Southeast Asia in the mid-90s was a bubble — oh, boy, was it a bubble, with huge current account deficits and wild speculation in real estate. Nonetheless, by contrast with Europe’s crisis economies, the Asians fairly quickly returned to and then passed the pre-crisis peak:
I will say, 15 years ago it would never have occurred to me that we would be looking back at Asia’s crisis as a success story.
Part of the problem seems to be that many macro-economists and policy makers appear to be operating from a theory of an economy being a self-equilibrating system not requiring much in the way of political/fiscal intervention to come out of recession and back to potential growth:
License To Stagnate – NYTimes.com
So what’s wrong with this pretty picture? Two ugly zeroes.
First is the zero lower bound on the interest rate: after a sufficiently large shock, the Taylor rule may say that you should keep cutting rates, but you can’t. Second is downward nominal rigidity, which isn’t quite as binding a constraint, but does lead the Phillips curve to be non-vertical in the face of very low inflation; as an IMF study of persistent large output gaps found, even years of a deeply depressed economy tend to produce at most slow, grinding deflation, and more usually slight positive inflation, not the ever-accelerating deflation the standard model would have predicted.
So here’s what happens after a large negative shock to the economy: the central bank finds itself up against the zero lower bound, so that all it can do is resort to controversial unorthodox measures. It might do that, or fiscal policy might be forced into action, if the economy really were suffering from accelerating deflation; but instead all you see is low inflation, which might even lead some central bankers to declare that they were doing their job just fine.
In the Bond movies, two zeroes meant a license to kill. In monetary policy, two zeroes — the hard zero on interest rates and the soft zero on wage changes — can, all too easily, give central bankers a de facto license to let the economy stagnate, remaining far below potential for an indefinite length of time.
As far as the Olli Rehns of this world are concerned, the latter problem – the soft zero on wage changes – is of course all the fault of the labour unions and the lack of “labour market reform”… I.e. the failure to impose even greater inequalities (and deflationary pressures) on European societies. And this is before one even considers the lack of a devaluation option for Eurozone countries in the grips of recession…
For all the progress of economic and political debate in the internet era, we are seeing perhaps the most complete example of popular ideological capture by our neo-liberal elites who have been arrogating to themselves the fruits of virtually all economic growth over the past 30 years. Most people seem to have come to accept declining growth, increased inequality, high unemployment and a withering welfare state as an unavoidable norm and are prepared to grasp at any straw indicating even a minor recovery.
Merkel’s election strategy seems to be to demonstrate that Germany is not Greece – whilst ignoring the degree to which German dominance has caused the Greek crisis. Scapegoat somebody else and make your people glad they haven’t been (relatively) scapegoated (yet) seems so be a winning strategy. Scare people about debt and economic uncertainty and then offer them the salvation of a few crumbs from the rich man’s table. It is a psychological and rhetorical strategy well known to any hell-fire preacher: make people afraid of eternal damnation and they will be glad to pay their supplication to the State/Church as if it were an unavoidable insurance premium.
Whatever happened to the socialist revolution, never mind the ideals of European solidarity? Do we really need a war every generation to remind us of the horrors of allowing our elites unfettered access to power and the means of public propaganda? Where is the counter-cultural revolution, the class analysis, or the organized opposition to such policies? With European social democracy having been effectively assimilated by the elite, where is the new dynamic of change to come from?
I often wonder what it was that happened to the Left (basically socialists and communists of various stripes) in the aftermath of 1968. By the time the 1970s and 1980s came and went, there really wasn’t much of an organized opposition left to speak of, was there? There has been some attempt on both sides of The Pond to re-introduce class analysis (the 1% vs 99% bit was quite clever, and relatable to a 21st century audience). There are some young socialist theorists who are offering something new to the mix (Richard Seymour comes immediately to mind). Beyond that, is there any evidence that the various spontaneous movements (such as in Greece, or the Indignados in Spain, or Occupy in the US) have evolved into something more lasting? I struggle for answers, too.
My generation has much to answer for, but at least there was an attempt to create a mass movement in opposition to establishment propaganda, the MIC, the racists in SA, Israel and the US, the sexists, bigots and homophobes, and to support better public health, education, energy, environmental and and employment policies. The best that can be said for the current generation is that some are fighting a rearguard action to preserve as many of the the gains made as possible. But where is the radicalism of youth, the imagination, the rebellion that put the fear of God into the establishment? Has everyone gone asleep? Are people now living in a parallel reality TV universe? Has the internet become the opium of the people?
I know the situation in Europe less well than you and a few others who post here and at EuroTrib. It did strike me that it has been long past time to shake the nominal left parties out of complacency. Although the Greek situation is certainly unique, enough of the leftist tendencies did manage to get it together enough to topple the SD Party and replace it with SYRIZA, which then came quite close to having some real power in its first real electoral test. But then again, Greece has so badly unraveled (government corruption, EU, IMF, etc), and it would be wise for us to not be in a position where catastrophic collapse is not only imminent but already on-going. I’m still of the opinion that nothing replaces good old-fashioned feet on the ground. It’s easy to ignore internet “activism” (real activism was already unfashionable in the US back when I was involved in it in the 1980s and early 1990s), but rather difficult to ignore thousands of living, breathing human beings making a lot of noise, and harder still to ignore them when they have organizations in place that can survive the inevitable end of those protests. The last couple years suggest to me that there are some stirrings. It needs to go way beyond stirrings very very soon.
Booman Tribune ~ The EU Stupid Expands
no other generation after the 60’s had the numbers to do what that generation was almost able to do.
the numbers gave us courage, plus we were children of the 50’s raised on sci-fi in a booming economy, we had
♫high♫hopes♫ and were well educated socially and civically compared to now. the GI bill had made universities pretty classless and provided a thriving atmosphere for radicalised politics, and the general confidence in the economically expanding future upped the choice menu for study choices, much more eclectic, globally aware, and philosophically and culturally diverse. there’s beauty and vitality in the diversity, whereas now much of that has been boiled out by a sterile faux-pragmatism, universities are becoming corporatised conveyor belts to a narrowing, and much less interesting ‘job market’, which is melting away the closer they get to graduation, like a receding mirage in the desert sun.
the student debt is staggering, and will lead many to reduce risk, eschew variety, entertain mediocrity and settle for pedestrian futures.
many young people are now using the internet to escape from reality into a virtual world where frivolity and idiocy rule, so there is an opiate quality in the escapist sense, but not the narcotic one, as the constant clicking away reminds me more of a low-level speed trip, a gnawing restlessness, an itch that just causes more urge to scratch the more you give in to it.
movies, tv, help this distancing from reality by offering ever more of a playground for projections. in search of higher eyeball count gore and explosions give the adrenal workout that a good swim or a vigorous walk used to give, with predictable results.
to aid in this mental degeneration has been the boom in junk food of all stripes, the mcdonalds-isation of diet, and the tawdry pablum of the shopping channels, reality shows, advertising etc… all of which turn young, eager brains to mush.
politicians have NLP’D up and now lie with new and better trickery to convince voters that the future will be what they promise it will be and not the grisly, bloodsoaked charade their voters see, know and pay for to watch on the nightly news.
having said all that, there is the knowledge now there to be harvested by the curious, and i am frequently amazed by how smart, positive, optimistic and tuned in some young folk are, way better informed and wiser than most of us protestors of hoary yore were back then.
iconic organisations like greenpeace, 350.org, uk uncut, beppe grillo’s 5* movement, and occupy wall st all suckled on the same tit that the antiwar and cultural upheaval of the 60’s sucked on, idealism laced with hope, chased down with dreams of changing the world for the better in the short time we have here, not so much for us, but like those who plant olive trees that won’t be harvested after their death, for those who come after.
some ideas won’t roll over and die no matter how quixotically utopian they seem to those who don’t hold them, and no matter how few do, because it’s quality that outlives fashion, and today’s novelty rapidly becomes yesterday’s trite if it’s not based on eternal verities or perennial philosophy.
as english becomes world language, there may be a return of the 60’s analogue, but global, because numbers may be what pushes change most, as only numbers can softly outpower force-of-hardware, and linguistic differences still stop millions from realising how many of us are in the same boat.
don’t give up on the young, Frank, some are blazing trails we would have wished to, standing on our generation’s shoulders, informed by our struggles and continuing them, building new community with bigger, hipper tools. it’s not all virtual…
Great comment. Deserves to inspire a diary in it#s own right. Sorry for the lateness of this reply, I have only just stumbled across it having long given up on this diary.
And yes – there is no chance of my giving up on the younger generation. My children, of whom I am very proud, are among them, and inspire me daily.