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Global Elites May Finally Realize Austerity Isn't The Answer
In the past week, political officials and economic experts in several countries have indicated they believe austerity is not, and indeed never has been, the answer to pulling the world's economies out of recession. First, everyone found out Paul Ryan is super bad at math (shocker). As it turns out, the paper the House Budget Committee chairman has been using to make the case for austerity was discredited after it became known that essential data was excluded from the study, leading to "serious errors that inaccurately represent the relationship between public debt and growth."
The Harvard professors who produced the paper have acknowledged their grave error.
Of course, Ryan's quest for austerity was never really about accurate figures or projections. His was an ideological battle that might as well have been waged by plucking random numbers from the ether for all that "facts" actually figured into the debate. The people at the bottom rungs of our society know austerity doesn't work. They've known that for years. After all, it is the people relying on public services like schools who see the direct impact of austerity in their day-to-day lives.
However, it seems as though at least some societal elites are finally waking up to the fact that budget cuts don't work during recession.
Bill Gross, manager of the world's largest bond fund for Pimco, and widely considered one of the most influential voices in the bond market, launched a harsh attack on the euro zone's severe austerity measures.
"The U.K. and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not," Mr Gross told the Financial Times. "You've got to spend money."
This week, European Commission President José Manuel Barroso said the bloc should place a greater emphasis on policies that stimulate growth in the short term and less on cutting government spending. The Wall Street Journal reports Barroso's statement is only the latest in a series of public statements that indicate a "shift in European economic policy is under way."
The International Monetary Fund last week point blank said the bloc should ease back on austerity, while a number of governments outside the EU have already made that call, noting budget cuts are hindering economic recovery. Spanish Finance Minister Luis de Guindos said over the weekend that his country's new budget plans that will be presented later this week will emphasize economic growth and reduce spending cuts.
Oh, also, austerity has led to widespread protests, societal collapse, and agony for the poor masses, but entities like the EU and IMF shy away from laying out things in those kinds of stark terms.
Recent austerity protest in Spain:
As the WSJ notes, the euro-zone economy has contracted for five straight quarters to the end of 2012 (most experts agree official figures for the first quarter of 2012 will show six quarters of decline), and austerity has contributed to declines in spending by households and businesses and a rise in the unemployment rate to a record high of 12 percent.
Though spending cuts and tax increases have helped reduce deficits across the 17 EU countries that use the euro, the region's overall debt rose because the countries' economies have flat-lined and fewer companies and households are paying their taxes.
The Seattle Times reports of the four countries that have accepted outside financial assistance by the end of 2012, Portugal and Spain saw their deficits swell — Portugal's deficit increased to 6.4 percent of the country's annual GDP from 4.4 percent the year before and Spain's jumped to 10.6 percent from 9.4 percent. Meanwhile, Greece's deficit rose to 10 percent of GDP from 9.5 percent and the country remains mired in deep recession. As a result, these are also some of the countries where we have seen high unemployment, the greatest social unrest, and most terrifyingly, the rise of right-wing extremism in the case of Greece.
Der Spiegel reports on Greece, "the worse the financial crisis gets and the harsher the budget cuts imposed by European creditors are, the worse the terror gets on the streets. Foreigners have been attacked, homosexuals chased and leftists assaulted. Some were beaten to death. There are parts of Athens in which refugees and minorities no longer dare to go out alone at night, and streets are echoingly empty. Foreign merchants have had to close their doors, while journalists and politicians who criticize these developments receive threats or beatings."
Euronews on the rise of the extreme right-wing in Europe:
But one would have to be in the streets, living among the people, to notice these developments. For academics and politicians, largely shielded from the realities of austerity, these kinds of cuts have always ranged from the ideological to the theoretical.
In America, unless politicians send their kids to public schools, the reality of an epidemic of school closings in Chicago and Philadelphia probably doesn't hit close to home if they send their kids to private schools.
The Guardian and Bloomberg have said "austerity is on trial," but we already know the outcome of this trial. Budget cuts during recession only worsen the economic realities for billions of citizens. If elites needs a refresher on that reality, they need only walk outside and talk to the people reliant on public services and stagnant (and declining) wages.