Monday, May 23, 2011

The Austerity Myth

At last summer's G20 Conference, Stephen Harper worked hard to get all the participants to buy into the Austerity Myth. That myth is based upon the belief that, in Paul Krugman's words, "sound money and balanced budgets [are] the answers to all problems."

It's the same myth which 39.6% of Canadians bought in our recent federal election. Unfortunately, writes Krugman in today's New York Times, it is public policy grounded in fantasy:

Underlying this insistence have been economic fantasies, in particular belief in the confidence fairy — that is, belief that slashing spending will actually create jobs, because fiscal austerity will improve private-sector confidence.

Unfortunately, the confidence fairy keeps refusing to make an appearance. And a dispute over how to handle inconvenient reality threatens to make Europe the flashpoint of a new financial crisis.

Working from this theory, the European Union bailed out Greece and insisted that government spending be cut to the bone. The same model was applied to Ireland, Portugal and Britain. And what have been the results? Things have gone from bad to worse. In all cases, the private banking system was saved, while the public picked up the tab. And the public now must endure the consequences, because the so called "best and brightest" have concluded that, while pain is not good for elites, it is good for the common man.

Stephen Harper, who has always seen himself as a card carrying member of the best and brightest -- with his newly minted majority -- plans to implement the same "wisdom" here. As Krugman writes, " . . . if this seems incredibly foolish, who ever said that wisdom rules the world?"


ck said...

Research Iceland's current economy. While it's not great, they're doing much better than many. Their government didn't feel that the banks were "too big to fail" and refused to bail them out. They haven't really embraced austerity. Nor did they ever join the Euro, though many did want them to. But, as Harper would say, they're a "norther European welfare state of the worst kind" and we certainly can't have that, now can we?

thwap said...

They believe in austerity because they don't like us.

The people with money want to keep it all to themselves and they delude themselves into thinking that an economy can be based on stagnation and poverty for the majority.

Owen Gray said...

Unfortunately, Harper is more of a theologian than an economist. His motto is "believing makes it so."

Everyone needs to believe in something. But misplaced faith can lead to tragedy.

Iceland's ecomomic policy appears to be more than faith based.

Owen Gray said...

Henry Ford proved a century ago, thwap, that it was wise to share his wealth. When he raised his workers wages, they bought his cars.

Unfortunately, in his old age he became a tyrant and hired goons to break up UAW meetings.

Current economic theory has made a hero out of old Henry Ford. It would be wiser to think about the wisdom espoused by the young Henry Ford.