Austerity! What is it good for? (Absolutely nothing!)
enlarge The next time some finger-waver at the Washington Post op-ed page calls for austerity, someone should point him to, you know, reality. Because reality right now is telling us that austerity is not only painful but wholly counterproductive. Here’s an excellent report from the Wall Street Journal on the wide social unrest that austerity has caused in Greece: Greece shook global markets, intensifying fears of a default, as tens of thousands of demonstrators protested a new round of budget-cutting plans and its prime minister offered to step down to try to preserve them. Protests across the capital sometimes turned violent as Prime Minister George Papandreou sought an agreement with opposition parties on austerity measures demanded as the price of a new bailout by euro-zone nations and the International Monetary Fund. The report also notes that austerity has actually exacerbated the sovereign debt crisis and hasn’t made bond holders any more willing to buy Greek bonds at lower interest rates: Yields on Greek government bonds leapt to new highs, with two-year paper yielding 29%. Bond yields on other troubled euro-zone economies like Portugal and Ireland also moved higher, and stock markets in the U.S. and Europe sank as fears of contagion picked up. The euro plunged 1.9% against the dollar. Needless to say, it’s not only the wacky anarchist college kids who are pissed off about all this. Mama and Papa Greece are none too pleased either: John Petru, 41 years old, said he had come to block parliamentarians from arriving to debate the budget cuts. “We do not trust them,” he said of the politicians. The recession has eaten badly into his cleaning-service business. “Business is down, and prices are up, and we are not sure about anything,” he said. Greeks have already suffered multiple rounds of budget cuts since last year, but they have failed to build confidence in the economy. The budget deficit has turned out to be wider than projected then, with the government failing to cut spending or raise revenues as much as promised. But the biggest gap in its finances has opened up because private investors have refused to buy new Greek government bonds at interest rates the government can afford. Many protesters said they had gone along with previous budget cuts and wage reductions on the belief that those sacrifices would be enough to right Greece’s fortunes. “They have asked us to reduce our wages, to live another standard of life,” said Angeliki Kachrimani, a 42-year-old worker for Greece’s postal service. She accepted a 15% wage cut; her husband, a history teacher, is unemployed. And look, this is all pretty simple to understand: Greece is in this mess right now both because its government lied for years about its budget deficits (with an assist from everyone’s favorite investment bank Goldman Sachs ) and because its monetary policy options are limited by the European Central Bank. In other words, investors know Greece can’t print its own money and thus will never be able to pay them back. The problem is exacerbated by the austerity measures that result in cuts to government jobs, cuts to wages and a drop in overall demand. These things aren’t exactly making investors feel good about Greece’s future economic prospects either. “Why should I give a damn about this?” you ask. Well, it’s pretty obvious that America’s own austerity backers, led by Paul Ryan, have similar plans for us as well. And it would behoove us to point to the examples of Greece and Ireland and the U.K. and shout at the top of our lungs, “AUSTERITY DOESN’T WORK, YOU TOOLS!!!!!” Because frankly, I’m not looking forward to widespread social unrest. God forbid the streets of America come to resemble third-world hellhole streets like those of Vancouver .
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Austerity! What is it good for? (Absolutely nothing!)
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on June 17, 2011. Filed under