Utter Folly Posing as Wisdom
The right thing, overwhelmingly, is to do things that will reduce spending and/or raise revenue after the economy has recovered — specifically, wait until after the economy is strong enough that monetary policy can offset the contractionary effects of fiscal austerity. But no: the deficit hawks want their cuts while unemployment rates are still at near-record highs and monetary policy is still hard up against the zero bound.
But what about Greece and all that? Look, right now sovereign debt problems are taking place in countries with a very specific problem: they’re part of the euro zone, AND they’re badly overvalued thanks to huge capital inflows in the good years; as a result they’re facing years of grinding deflation. Counties not in that situation are not facing any pressure from the markets for immediate cuts; as of this morning, 10-year bonds were yielding 3.51 in Britain, 3.21 in the US, 1.27 in Japan.
Yet the conventional wisdom now is that these countries must nonetheless cut — not because the markets are currently demanding it, not because it will make any noticeable difference to their long-run fiscal prospects, but because we think that the markets might demand it (even though they shouldn’t) sometime in the future.
Utter folly posing as wisdom. Incredible.
I can't help but think once again of Gene Sperling's comments at the fiscal summit in 2009:
"I think there may be a lot more openness than we thought in the past for people to have an honest discussion about the shared sacrifice necessary to have Social Security solvency. That this would be a sure thing they could count on, and they could count on for the next 50 to 75 years ... I really hate the whole argument about, is this a crisis or is this not a crisis? Why do we not want to preempt a crisis. Why do we not want to do something early? It is a shame on our political system that there has never been entitlement reform without a gun to our head...Wouldn't it be a tremendous confidence-building thing to act early and smart?"
They really believe that asking for "shared sacrifice" is doing righteous work. (Coddling phantom bond traders and investment bankers, same same.) It's all for our own good and they seriously believe they will be thanked in the long run for "reforming" the welfare state. But to quote the all too obvious person in this case, "in the long run we'll all be dead."
Montereyan at the European Tribune responded to and expanded on my post yesterday about this rise of global neo-Hooverism. It's a great post and worth reading in its entirety, but this particular point is worth highlighting. He points out that this doesn't work without buy-in from the public. The effects of 25+ years of neo-liberal economics combined with the right wing's culture war propaganda have taken their toll. He writes:
The globe is entering a period of fundamental change. Here in the US, the assumptions, values, and lifestyles of the last 60 years are no longer viable and are on their way out. Virtually everyone seems to know it in their bones. Some of us embrace the opportunity to construct something better.
What I see happening here in the US is that austerity is being mobilized to protect existing privilege. Whites with some assets, property, and political/cultural dominance see in stimulus for everything from mass transit to schools and health care a threat to their privilege through government aid to those who are the agents of the massive change they feel is coming upon them, change they do not want.
And the right wing's cultural indoctrination has given them a framework and a worldview within which to organize their thinking.
He is hopeful that if we have a "lost decade" a new framework for understanding will be developed, even if in fits and starts. Unfortunately, I don't think anyone can predict the psychology of a "lost decade" on a society. It's certainly possible that people will rationally reorient themselves to a new reality. It's also possible that they will go nuts. I'm doubting that we'll enter another Dark Age, but there's ample precedent for things going very wrong under this kind of stress.
And for the people in the middle and end of their lives, this is going to be a terrible reorientation. They are too old to make all the money and opportunity they've lost back again, even in good times. If the powers that be decide this is their opportunity to end the welfare state, this group is going to find it very hard to adjust. More ominously perhaps, I'm guessing that leadership with fascist inclinations will find a very willing audience.