Austerity Being Defeated in the Elections

Prof. Jayati Ghosh: EU Zone Policies will have to Change

Prof. Jayati Ghosh, JNU discusses with Newsclick the impact of the elections in France and Greece on the fiscal and economic policies of Euro zone. She believes that though Greece is now nearing end-game, if Germany and the EU is willing to change its austerity regime, there is still a chance of Euro zone to continue. But it will require a fundamental change in its economic vision that is still tied to the neo-liberal framework.

Brian Brown on Austerity

Ireland, Greece, Italy, Belgium, Spain, the UK, US and more… democracies subverted by banksters in their attempted global coup.
People of the World- clearly you can see the politicians are not going to save the day. It is you who must organize others to take the protest to the TV Stations.

Surround the stations., Demand a live TV debate with any and all politicians. Demand all discussions (like Greek cabinet meetings on “Austerity”) be broadcast live. If they refuse, what are they afraid of?
It is up to regular people all over the globe to

Link to this page: 

Spain: “Act, take to the streets, do not consume [es].”

“Act, take to the streets, do not consume [es].”  With this slogan, the Assembly of the Neighborhood Los Austrias in Madrid convened the 29M General Strike (on March 29) in Spain, which had a massive attendance across the country.  This direct call to action [es] is contrasted with the labor unions' more impersonal slogans - “They want to change everything” - and is an example of the rift that opens in every social movement between the official conveners and those who demonstrate without a flag of any sort.
In this sense, the 15M movement has been a turning point in terms of supporting the calls of a part of civil society, organized in collectives, neighborhood assemblies, and local or individually-led associations.  In this general strike, the citizen movement has taken different forms in the streets, neighborhoods, social organizations, and digital social networks.
One of the initiatives has been the “consumption strike.”  Many took to the streets with their own food and drinks from home:

Popular Lunch in favor of the workers' strike in Campo de la Cebada de Madrid. Photo by author Lidia Ucher.

- 14h: Comida Popular – traerse el tupper para compartir (recuerda #HuelgadeCONSUMO, cocina el día anterior)

- 2pm:  Popular Lunch [es] — bring Tupperware to share with everyone (remember #CONSUMPTIONstrike, cook the day before)

The intention was to support the strike and take to the streets without paying to consume food for 24 hours. This is how Kaos en la Red summarize the motives:

En principio, la idea es sencilla: una huelga de consumo consiste en dejar de consumir bienes y servicios durante el día fijado para la huelga. Realizar una huelga de consumo respondería a dos de las limitaciones de una huelga general: por una parte, incluye a toda aquella persona que no puede realizar huelga “laboral” - en realidad, se supone que sólo pueden realizarla trabajadores por cuenta ajena, y de estos ni tan siquiera todos-; por otra, dejar de consumir bienes pero sobre todo servicios contribuiría de alguna manera a no forzar a alguien a trabajar - y así, de paso, contribuir a deslegitimar la práctica de fijar servicios mínimos abusivos para minimizar la repercusión de la huelga.-

Initially, the idea was simple:  a consumption strike consists of stopping consumption of goods and services during a specific day.  Carrying out a consumption strike would respond to two limitations of a general strike:  on one hand, it includes all those who cannot participate in a “labor” strike” — supposedly workers can only carry it out on behalf of someone else in reality, and among them, only a few - and on the other, not consuming goods, and above all services, contributes in some way to not force someone to work, therefore discrediting the practice of fixing abusive minimum services to minimize the strike's impact.-

One of the suggestions to support the consumption strike was to “disconnect oneself,” to affect the statistics of home electric consumption at the moment the strike's impact was measured.
Another one of 29M's proposals from the neighborhood assemblies was the “care and gender strike” [es]:

…la propuesta es ponernos nuestro mejor delantal, guantes y utensilios varios con un cartel “Huelga de Cuidados” ¿Y dónde hacemos el piquete? Pues en los hogares. Vamos a contarle a las señoras que no lo sepan lo que es una huelga de cuidados y porqué es necesaria. Nos apoyaremos en el díptico que adjuntamos  Díptico: Comando de cuidados para la huelga (Es importante imprimir a doble cara para cortar por la mitad, haced las copias que podáis!!!).

…the proposal is to put on our best aprons, gloves, and various utensils with a sign that says “Care Strike.”  And where we will have the picket line?  Well, in our homes.  We're going to tell women who do not know what a care strike is and why it is necessary.  We will show our support in the diptych that we attach Diptych:  Care Commando for the Strike [es] (It is important to print it double-sided in order to cut it in half, and make as many copies as you can!!!).

From the collectives and neighborhood assemblies, 29M has become a new important date for the movements' agenda, in which hundreds of people have thrown themselves to organize, call, and mobilize thousands more.  And it is not revolving around large productions nor labor union meetings, but rather simple ideas that can motivate many more people to take to the streets and take part in demonstrations, in another way, or perhaps the same way as always [es]:

29M in Madrid. Photo by author Lidia Uche

14:00 en el Campo de la Cebada Austrias: Comida Popular a favor de la Huelga de trabajo, consumo y cuidados. . Haremos un gran puchero.

29M in Madrid. Photo by author Lidia Ucher.

2:00pm in Campo de la Cebada Austrias: Popular Lunch in favor of the Strike for work, consumption, and citizens.. We will make a huge stew. [es]

On social networks, the following hashtags have been created to make innovations in alternative and creative slogans surrounding the strike [es]:  #Take29M, #29M, #29BadStreet, #TaketheSTRIKE, #Iamstriking,#onstrike… and #SignsStrike
On their part, some social organizations have supported the general strike like State Coordinator of Spain-NGO's, the 2015andmore Platform, and the Spanish Alliance Against Poverty [es]:

…Y además el Gobierno asesta un duro golpe a nuestro modelo social, a los pilares del Estado de bienestar: la sanidad, la educación y las políticas sociales; eliminando o devaluando importantes derechos civiles como el derecho de las mujeres a la interrupción del embarazo, el matrimonio homosexual o los derechos de inmigración. De no evitar esta reducción de derechos, presentadas de forma falaz como reformas, asistiremos a una quiebra de nuestro modelo de convivencia, y a la confirmación de un programa de acción política sometido a la exigencia de los mercados financieros.

…Furthermore the government dealt a harsh blow to our social model, the pillars of the welfare state: healthcare, education, and social policies, eliminating or devaluing important civil rights like the right of women to terminate a pregnancy, homosexual marriage, or immigration rights.  If we do not denounce this reduction of rights, presented falsely as reforms, we will see a breakdown in our model of coexistence, and the confirmation of a political action program submitted to the demands of the financial markets.

Written by Lidia Ucher ·Global Voices

Krugman and British Austerity

In a recent New York Times op-ed piece called "The Austerity Debacle," columnist Paul Krugman notes how policies in Britain have failed to bring about an economic recovery. In doing so, he contends that the British government's decision to "slash spending" has led to a slower economic recovery as measured by real GDP growth than during the Great Depression. However, as will be shown, the present British government has implemented insignificant spending reductions and continues to run large budget deficits while the British government of the Great Depression followed "austerity" measures much more closely than the present government. Therefore, so far as unrelated historical events provide any evidence, the historical evidence in Britain supports the view that spending cuts bring about larger economic recoveries than deficit spending does.
For Krugman, austerity measures represent the source of serious economic problems in Britain. As a consequence, Krugman remarks,

It turns out that by one important measure — changes in real GDP since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British GDP had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.… Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy. And it's a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.

Based on a combination of economic problems in Britain and an assertion that austerity caused or exacerbated these problems, Krugman believes he has empirical support for his view that, during recessions, deficit spending promotes economic growth and cutting spending exacerbates economic downturns.
Interestingly, Krugman neglects to provide any data on British government actions. In particular, although he asserts that British policies have simply been to "slash spending," he neglects that Britain ignored the advice of free-market supporters by increasing tax rates significantly, such as raising the top marginal income-tax rate to 50 percent, the capital-gains-tax rate to 28 percent, and the value-added-tax rate to 20 percent. More damaging to his view, as can be seen on tables 25 and 27 of this Organisation for Economic Co-operation and Development (OECD) document, British spending has experienced no significant cuts and still represents a sharp increase compared to prerecession levels.
Although British spending as a percent of GDP fell mildly from 51.1 percent in 2009 to 49.8 percent in 2011, this level still signifies a massive increase in spending from 2007 levels of 43.9 percent of GDP. Similarly, although the British deficit as a percent of GDP fell from 11 percent in 2009 to 9.4 percent in 2011, this deficit still amounts to a huge surge compared to the 2007 level of only 2.8 percent and, with the exception of this recession, exceeds all other deficits in Britain since World War II. Though certainly Keynesians can look at these minor cuts in the scope of government spending as compatible with their theories of how reducing deficits affects the economy, they should emphasize for the sake of honesty that they believe a government that represents half of all the spending in an economy with an essentially record post–World War II deficit of more than 9 percent of GDP is being "austere" so that people who haven't looked at the data can make their own judgments on the merits of the claim.
Although critics of spending cuts can legitimately interpret British data to fit their theories, they cannot gain further evidence through the historical comparison made by Krugman to the Great Depression. As stated above, Krugman believes that British austerity measures have caused the recovery in Britain to be slower than during the Great Depression. In making this claim, he fails to consider the actual fiscal policy of Britain during the Great Depression. After leaving the gold standard in 1931, the British government balanced its budget and reduced spending as a percent of GNP every year until 1935, reducing government spending from a high of 28.8 percent in 1931 to 24.4 percent in 1935.[1] Although not ideal — because part of the reduction included tax increases — this policy succeeded in creating small budget surpluses every year from 1929 through 1936 (except for an irrelevant 0.2 percent deficit in 1932) — leading as Krugman mentioned to a faster recovery than the current British policy of a 9 percent-plus deficit as a percent of GDP.[2]
Comparing the real cuts in 1931 to the 2010 "cuts," which entailed an increase in spending in real terms, it's clear that a historical comparison would better support proponents of spending cuts than Keynesian deficit spending.[3] It is truly a strange state of affairs when economists find it reasonable to use the word "austerity" to describe both Britain's balanced budgets and spending reductions in the 1930s and its extremely large deficits without any real spending cuts in 2010. It's also unfortunate that, in making this comparison, they neglect to mention that the balanced-budget economy experienced a stronger recovery.
In reflecting on British stagnation, Krugman laments that economic policy has failed to learn the lesson of the Great Depression. In particular, he states,

Surpassing the track record of the 1930s shouldn't be a tough challenge. Haven't we learned a lot about economic management over the last 80 years?… I'm sorry to say, many economists decided, largely for political reasons, to forget what they used to know. And millions of workers are paying the price for their willful amnesia.

$25.00 $15.00

Indeed, it is truly sad that many economists have advocated bad policies, and Britain and other governments have continued to raise taxes and run large budget deficits despite experience that cutting spending in Britain worked better. It's also truly sad that some economists in describing this history have experienced "willful amnesia." For instance, Krugman says that he has read Lionel Robbins's The Great Depression (1934), but he apparently forgot (or ignored) Robbins's contention that Britain balanced its budget in 1931 — that is, before the economic recovery.[4]
In ignoring the lessons from 80 years ago, the New York Times columnist advocates for less effective policies than those performed at the time, resulting in a slower recovery in the present. Although historical comparisons offer inconclusive evidence at best, Krugman chose to make this specific comparison to bolster his point when, in fact, the historical comparison between Britain during the Great Depression and contemporary Britain conflicts with Krugman's interpretation. Rather than advancing the Keynesian hypothesis, the comparison of British policies over time better supports the view that true spending cuts lead to more robust economic recoveries than the allegedly "austere" policies of Britain today.

Comment on this article.
Sean Rosenthal is a graduate of Georgetown University. As an avid reader of liberty, he considers his main intellectual inspirations to be Frederic Bastiat, F.A. Hayek, Henry Hazlitt, Rose Wilder Lane, Ludwig von Mises, Robert Nozick, and Murray Rothbard. He will be attending law school in the fall. Send him mail. See Sean Rosenthal's article archives.
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Notes

[1] Alan T. Peacock and Jack Wiseman, The Growth of Public Expenditures in the United Kingdoms (Princeton: Princeton University Press, 1961), p. 166. Also, note that pp. 164–165 shows that government spending in real terms fell every year from 1931 to 1934 before increasing slightly in 1935. I planned to use the source UKPublicSpending.co.uk due to the ease of its data and charts, but I found systemic errors when comparing more recent data on the site with OECD publications, and the data curiously conflicts with this source despite its being the source of reference, perhaps explaining in part why there seems to be such confusion over British government policies. Although this 1960s book uses GNP instead of GDP, the differences are insignificant enough to discount for this purpose, and more recent publications shouldn't alter historical data of the Great Depression.
[2] Karl Aiginger, The Great Recession versus the Great Depression: Stylized Facts on Siblings That Were Given Foster Parents (Economics: The Open-Access, Open-Assessment E-Journal, Vol. 4, 2010-18), pp. 21–23. I cite the helpful, well organized data, but not the interpretation given by the author.
[3] See page 63 of "Public Expenditure: Statistical Analyses 2011," HM Treasury.
[4] See Lionel Robbins, The Great Depression, p. 96.

Austerity Plans Reflect Wrong Diagnosis of Wrong Problems

Austerity Plans Are Based on the Wrong Diagnosis of the Wrong Problem -- And May Plunge Europe into Depression

Governments must be able to spend strategically to encourage growth, or the crisis will only get worse.

January 4, 2012  |  

 

Even if European politicians ‘get their acts together,’ the eurozone crisis will not be solved by a new ‘Fiscal Compact’ obsessed with austerity, i.e. tight rules for all member states on their spending. The agreement, which is intended to save the single currency, is not a “fiscal” anything, since that word usually refers to government spending. The plan is really an Austerity Compact – an attempt address economic malaise based on upside-down thinking.
And it won’t work. Because as John Maynard Keynes revealed, the worst thing that a government can do during a recession is to lower spending. And yes, all of Europe is in a recession, and probably a depression soon. Private investment spending is cyclical in nature -- too much during up-boom periods and too little during down periods. That’s why government spending must act as a counter-balance. Instead, what we have seen is government actions fueling private sector spending (with lower interest rates and lower taxes) in boom periods (like the 1990s), and now withdrawing spending during the recessionary period when there is not enough private investment.
This is exactly the opposite of what should happen.
But the main problem with the ‘Austerity/Fiscal Compact’ solution is not just that it won’t work for Keynesian reasons, but that it is based on exactly the wrong diagnosis of the problem. The austerity solution assumes that the problem with countries like Portugal, Ireland, Italy, Greece, and Spain (PIIGS) that are peripheral to the eurozone (and the list is growing) is that they ‘spent too much.’ As I have now argued endlessly in various media outlets, this idea is completely false. In fact, the pre-crisis deficits of all EU countries (except Greece) were in line with the target rates of 3-4%. Deficits started to rise in 2007 after government spending rose to fund stimulus packages and bailouts. If you look at Spain, currently one of the most problematic countries, you will find that it had one of the lowest deficits before the crisis, and even one of the lowest ratios of debt to economic output (debt-to-GDP).
Growth and Speculation are the True Culprits

Instead, the real problem has been two-fold: a growth crisis and a speculation crisis.
The growth crisis developed from the fact that the periphery countries, especially Italy and Greece, had not been making the ‘smart’ investments in areas like human capital formation, training and research and development (R&D) which can increase productivity. In fact, Italy has one of the lowest rates of R&D spending (and productivity growth) in Europe. And if productivity remains low, so will growth.
As long as the growth rate remains lower than the interest rate paid on the debt, the debt/GDP ratio will by definition keep increasing. And it is this ratio that worries investors.
The speculation crisis has arisen because the European monetary union was not supported by a proper European Central Bank willing to act as a lender of last resort. This failure has caused bond market speculators to place bets on the ability of countries to pay back their high debts. Look at the case of the UK: Even with a very low growth rate, the UK has not been attacked (yet) by the bond markets because despite its low growth, it will never default on its debts, given the willingness of the Bank of England to be the lender of last resort.
Driving Down Wages Will Hurt, Not Help

But coming back to the problem of growth and ‘competitiveness’, many (even progressive commentators) have pointed the finger to so-called ‘structural reforms’ and/or the need for the ‘global imbalances’ to be corrected. While corruption must indeed be fought against, tax evaders should be punished, and labor markets need to help the young and not only the old, it is wrong to think that the problem stops there.
Indeed, Germany is accused of reaping its ‘surplus’ by suppressing wages with rising productivity (the result of the 'Schroeder reforms', labor reforms named after the former German Chancellor Gerhard Schroeder). The figure below showing Germany’s relatively low unit labor costs has been used by many to suggest that lowering wages is a good thing.

(Source: OECD)
This view has now put much pressure on countries to lower wages through a more flexible labor market as the main route to achieving German-style competitiveness and rebalancing the European economies (making German goods have less of a cost advantage, hence reducing Germany's trade surplus). In other words, because countries within the EU don’t have the option of devaluing their currency, they are forced to turn to internal devaluation in the form of wage decreases and constant monitoring to make sure this happens.
There are several problems with this approach. The first is that actually it is ‘real’ wages that matter most, i.e. wages that also take into account indirect payments and benefits received by a nation’s citizens (things like cheap public housing; state subsidized nurseries; generous unemployment benefits). In this case, the picture in Germany looks different. The data below show that Germany's ‘real’ wages (including welfare contributions) to be relatively high, not low.

Low wages to do not benefit economies. In fact, they take money out of the pockets of consumers and decrease the demand for goods and services. When that happens, companies that cannot sell their products will lay off workers and stop spending on equipment and so on. All of which creates a vicious cycle of further economic deterioration.
In reality, much of Germany’s competitiveness is not due to it paying low wages but instead comes from its high spending in critical areas like R&D, human capital, and its finance system that supports ‘patient’ capital rather than the short-termism of the UK and US model. In fact, Germany’s publicly funded R&D has increased more than that in any other EU country even after the crisis. This is not to say that differences in unit labor costs have played no role, simply that they have been over-emphasized, damaging our ability to think clearly about the root of the problems.
If Germany wants its neighbors to be more ‘stable’ and competitive, then those governments need to be able to spend strategically as Germany has done, and their workers need to have decent wages that support the demand for goods and services. This is currently impossible due to German Chancellor Angela Merkel’s insistence that the cause of the crisis is spending too much and the solution fiscal austerity.
That's the wrong diagnosis and wrong solution. -AlterNet