OECD is Latest Economic Bigwig to Question Austerity's "Loop of Doom"
By not increasing spending, 'we are breaking promises to young people and old people,' says OECD economist
Less than a week after the International Monetary Fund (IMF) expressed reservations about neoliberal policies like austerity, the Organization for Economic Co-operation and Development (OECD) is urging governments to increase spending in order to "make good on promises to current and future generations."
Not doing so, OECD chief economist Catherine Mann told Reuters, deprives youths of job opportunities and means the elderly will not get the healthcare and pension benefits they expect. "We are breaking promises to young people and old people," she said.
In its twice-yearly Global Economic Outlook, the 24-nation body said the world is stuck in a "low-growth trap" that will only get worse under status quo policies like quantitative easing.
Indeed, the OECD said "almost all countries have room to reallocate spending and taxation towards items that offer more support to growth" like investments in infrastucture as well as education.
"Governments, in other words, should stop obsessing about cutting their way back to financial health and consider growing their way out of the red instead," wrote the Guardian's economics editor Larry Elliot on Wednesday, who noted that a "wind of change is howling through the world's economic institutions."
Words, however, come cheap. Just as the IMF’s new thinking about the failings of neoliberalism is not always shared by the officials that give policy advice to countries in economic difficulties, so there is no obvious rush by OECD members to club together for a joint public investment programme. As Ángel Gurría, the OECD’s secretary general, put it: "They are talking about it but they are not doing it."
Things may need to get worse before the penny drops. If the OECD’s gloomy analysis is right, that moment may not be far off.
Writing from a country where the "cruel screw of austerity" has turned for years, former Greek finance minister Yanis Varoufakis on Tuesday offered an on-the-ground perspective of how tax hikes and pension cuts have affected his country's population.
"Behind the grim numbers," he said in the New York Times op-ed, "an ugly reality looms, one that gets uglier by the day. Small businesses have been crushed by punitive taxes, and a wave of home foreclosures is on the horizon. Greece’s hospitals are running out of basic necessities, while our universities cannot even afford to provide toilet paper in their restrooms. In Athens these days, only the soup kitchens are flourishing."
Noting that last week's meeting of the so-called Eurogroup—an informal body of eurozone finance ministers together with officials from the European Central Bank and the IMF— dashed Greek hopes of debt relief, Varoufakis declared: "Reason demands an end to this loop of doom."