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Hullabaloo


Monday, April 23, 2012

 
From the "who could ever have predicted" files

by digby

Well, hell, why didn't somebody warn them?

Citizens from Prague to Paris to Amsterdam have made it abundantly clear in the past few days that they are tired of the economic austerity forced on them by the euro zone debt crisis.

But as the budget-cutting pain of reduced government benefits and social services brings protesters to the streets and fuels support for nationalist or far-left parties, it remains unclear what the economic alternatives might be. Rejecting austerity budgets in favor of more government spending will not ensure growth, many economists say.

Governments in countries like Spain are having enough trouble financing their existing debt, much less coming up with stimulus money. Germany, the only large country in the euro zone with the budgetary room to increase deficit spending, is not willing to do so. Neither was the Netherlands, at least until its government collapsed Monday over a dispute that essentially reflects the austerity versus growth debate.

“We are getting more and more reform fatigue,” said Jörg Krämer, chief economist at Commerzbank in Frankfurt. “It is a problematic phase in the sovereign debt crisis.”

Financial markets were down deeply and broadly in Europe on Monday, on concerns over the austerity backlash, and the sell-off carried over to the U.S. markets. As more European countries teeter on the edge of recession or slip into one — and official figures released Monday confirmed that Spain had done so — even the policy-making elite has begun to question whether Germany and the European Central Bank have gone too far in insisting that fiscal discipline is a prerequisite to growth.

Ya think? I'm sure I don't have to tell readers of this blog just how obvious this is. But it takes your breath away to see this, written down in black and white:

[A]s the budget-cutting pain of reduced government benefits and social services brings protesters to the streets and fuels support for nationalist or far-left parties, it remains unclear what the economic alternatives might be. Rejecting austerity budgets in favor of more government spending will not ensure growth, many economists say.

I'm sure that't true. There are few guarantees in life. And you can find "many economists" who'll say anything. What one could fairly easily predict is that rejecting austerity budgets would mean less austerity. And that would make sense since austerity clearly isn't working.

This pretzel logic reminds me of one we are having in the United States today about Social Security. The new projections came out and apparently the trustees have changed the arbitrary assumptions they were using to some new arbitrary assumptions. (They are now projecting that we are all going to be much poorer overall so we'll have less money to save in our social security fund.) The final analysis is that in 2033, the fund will come up short and will only be able to pay out 3/4 of its promised benefits.

Or, as Atrios says:
Alternatively we could make people retire later and cut everybody's benefits now and give the money to rich people. Just a thought.
That is actually the plan the entire political establishment is trying to sell. Krugman put it this way:

Let us reason together*: the dire fate we’re supposed to fear is that future benefits won’t be as high as scheduled; and in order to avert that fate we must, um, guarantee through immediate action that future benefits won’t be as high as scheduled. Yay! Wait, what?

No, really. I guess there would be some virtue to making this all crystal clear well in advance, but that’s pretty second-order. Basically, the “solution” just locks in the bad things for seniors that the attackers claim will happen anyway.

Atrios also reports that Mark Warner is already out there saying the fund "runs dry" in 2033, which is a lie. But typical of our favorite centrist panic artists. Here's a perfect example of the genre:

August 28, 1996 
 CHICAGO - Sen. Bob Kerrey smells an odor coming from the Republican and Democratic stands on entitlements.
"It's one of the cruelest things we do, when we say, Republicans or Democrats, `Oh, we can wait and reform Social Security later,' " the Nebraska Democrat said.

Mr. Kerrey says that without reform, entitlements will claim 100 percent of the Treasury in 2012.

"This is not caused by liberals, not caused by conservatives, but by a simple demographic fact," Mr. Kerrey warned at a meeting of the Democratic Leadership Council. 


"We [will have] converted the federal government into an ATM machine."
How'd that turn out?

Eric Kingson and Nancy Altman have the detailed response to the scare stories. Whatever shortfall there is can be easily remedied without cutting benefits. They just don't want to do it.

Update: This trope that there's nothing to be done about the Eurocrisis is everywhere.  Read this by Dean Baker for the antidote.


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