A new Left is rising in Europe as the new year begins. And despite the fears it engenders in polite society, this New Left is less Marxian than it is — oh, the horror — Keynesian.
Keynesianism is a complex economic theory, but its central insight is simple enough: If every institution stops spending, economic activity will decline. Self-evident though this may be, this insight has eluded such global economic institutions as the International Monetary Fund, as well as Europe’s economic hegemon, Germany, when dealing with the depression that has devastated southern Europe, and Greece in particular.
In confronting the economic crisis that began with the 2008 implosion of Wall Street, nations such as Greece and Spain were unable to bolster their economies by devaluing their currencies, which would have made their products more competitive. They didn’t have currencies of their own; they had the euro, over which they had no control. The other way they could have bolstered their economies, at a time when their banks and businesses were reeling and had no capacity to invest, was to follow the Keynesian course of having their governments invest more by enacting a stimulus, as our government did at the outset of Barack Obama’s presidency. But the European Union, steered by Germany, blocked that option by threatening to cut off credit and loans to southern Europe unless those governments enacted major cuts in spending. Cowed, that’s what the governments of Greece and Spain did.
The counter-Keynesian “logic” behind these cuts was that, by injecting more fiscal discipline into their systems, these nations would improve their competitiveness and return to prosperity. The consequence of these cuts, however, has been exactly what the Keynesians predicted: With both private and public spending drying up, the economies of these nations tanked. And with Germany continuing to insist on even deeper cuts, their economies stayed tanked.
Greece has now experienced three years of 1932-levels of depression, with between 25 percent and 27 percent of its workers unemployed and youth unemployment stuck at a seemingly perpetual 50 percent, spiking once to 61%. The situation in Spain hasn’t been much better. This came as a surprise to the institutions that imposed the austerity regime — the IMF had predicted that Greek unemployment would peak at 12 percent — but, preferring their theory to reality, they insisted that more austerity would turn the economy around.
For a time, Greeks gave some credence to these theories, but three years of desperation with no end in sight has exhausted their patience. In both Greece and Spain, much of the public has turned against the politics of austerity and the mainstream political parties that enacted them. In both nations, new parties of the left — Syriza in Greece, Podemos in Spain — lead in the polls. With this week’s dissolution of Greece’s parliament and new elections set for Jan. 25, it’s entirely possible that Syriza will come to power on a platform of negotiating debt reductions to the country’s creditors and restoring some governmental programs and economic investment. If the European Union refuses such proposals, it’s also possible that Greece will drop the euro as its currency.
The policies that the European Union — that is, Germany — has imposed on southern Europe run counter to every lesson history teaches us about how to counter a prolonged economic crisis. In the 1930s, Franklin Roosevelt devised the New Deal not merely to counter the Depression’s effects but specifically to bolster what was then the underdeveloped economy of the American South and Southwest. His remedies extended beyond such successful stimulus programs as the Works Progress Administration , which gave millions of Americans jobs building needed public infrastructure. His policies also were crafted to bring the Southern economy into the 20th century through such programs as the Tennessee Valley Authority and rural electrification. The Jeffersonian anti-statism of today’s South notwithstanding, it was the New Deal and postwar military spending, as well as minimum wage and civil rights legislation, that enabled the Southern economy to catch up with the rest of the nation.
A similar understanding of the economics of depression and under-development could have yielded more successful economic outcomes in the European south over the past few years. German Chancellor Angela Merkel also could have learned a lesson closer to home: It was the austerity policies enacted by Chancellor Heinrich Brüning in the early 1930s that plunged Germany deeper into depression and paved the way for the Nazi takeover. Say this for the German misunderstanding of macroeconomics: It’s consistent.
While a neo-Nazi party (Golden Dawn) has also sprung up in Greece, polls show the Greeks favoring the neo-Keynesian Syriza. That’s an eminently sane response to the insane immiseration that the Germans have inflicted on them.