Waking from the nightmare
by David Atkins
Paul Krugman, right as usual, has a predictable but necessary take on the French and Greek election result:
Both countries held elections Sunday that were in effect referendums on the current European economic strategy, and in both countries voters turned two thumbs down. It’s far from clear how soon the votes will lead to changes in actual policy, but time is clearly running out for the strategy of recovery through austerity — and that’s a good thing.
Needless to say, that’s not what you heard from the usual suspects in the run-up to the elections. It was actually kind of funny to see the apostles of orthodoxy trying to portray the cautious, mild-mannered François Hollande as a figure of menace. He is “rather dangerous,” declared The Economist, which observed that he “genuinely believes in the need to create a fairer society.” Quelle horreur!
What is true is that Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working. But it isn’t and doesn’t; it’s time to move on. Europe’s voters, it turns out, are wiser than the Continent’s best and brightest.
What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.
It's hard to believe that the entire world has bought so heavily into the austerity mania, but there it is. It's not hard to understand how it happened. It's just hard to understand why it persists even after the myopia of austerity has become clear.
The chain of events went as follows: increased globalization and technological advancement > ability of corporations to reduce and offshore workforce while increasing profits and productivity > need to disguise wage and employment losses among average citizens with asset growth, the democratization of debt and finance and importation of cheap foreign goods > asset bubbles and indebted citizenry, coupled with massive income inequality > burst bubbles, zombie banks and nations with large debt to GPD ratios.
It's understandable that some nations would panic and desperately try to contract their own economies rather than do the hard work of bringing their banks to heel and cooperating with one another to rein in the unaccountable corporations causing the problems in the first place. But it's not acceptable that once the predictably failed experiment born of panic was attempted, wiser heads did not step in to take the necessary approaches.
Here's hoping the elections in Greece and France are the beginning of a global pushback against the global dominance of assets over wages.