Stephen Harper and David Cameron live in a bubble of mutual admiration. That bubble is on display this morning in London. They are congratulating each other on their economic prowess. But the IMF has acknowledged that the policies which Harper and Cameron espouse -- and which the IMF used to officially endorse -- have been catastrophic failures. Carol Goar writes in The Toronto Star:
Late last Wednesday, the powerful International Monetary Fund (IMF), which led the Greek bailout three years ago, issued an extraordinary mea culpa, admitting it had underestimated the severity of the debt crisis and miscalculated — by a spectacular margin — the damage its harsh strictures would do.
“Market confidence was not restored, the banking system lost 30 per cent of its deposits and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment,” the global agency wrote in a 50-page report.
Paul Krugman came to the same conclusion in an article he called "How The Case For Austerity Has Crumbled" in The New York Review of Books. Krugman wrote:
In the beginning was the bubble. There have been many, many books about the excesses of the boom years—in fact, too many books. For as we’ll see, the urge to dwell on the lurid details of the boom, rather than trying to understand the dynamics of the slump, is a recurrent problem for economics and economic policy. For now, suffice it to say that by the beginning of 2008 both America and Europe were poised for a fall. They had become excessively dependent on an overheated housing market, their households were too deep in debt, their financial sectors were undercapitalized and overextended.
But rather than carefully examining the data, the Masters of the Financial Universe bought into the notion that economics, at bottom, was a morality play. Krugman opined:
Everyone loves a morality play. “For the wages of sin is death” is a much more satisfying message than “Shit happens.” We all want events to have meaning.
When applied to macroeconomics, this urge to find moral meaning creates in all of us a predisposition toward believing stories that attribute the pain of a slump to the excesses of the boom that precedes it—and, perhaps, also makes it natural to see the pain as necessary, part of an inevitable cleansing process. When Andrew Mellon told Herbert Hoover to let the Depression run its course, so as to “purge the rottenness” from the system, he was offering advice that, however bad it was as economics, resonated psychologically with many people (and still does).
At the beginning of the Greek Crisis, you may recall that the Reverend Mr. Harper went to Greece to encourage George Papandreou to apply more austerity than what the European Union had forced upon him. It should be perfectly obvious by now that -- despite his master's degree in economics -- Mr. Harper doesn't know what he's talking about.
He really is a fundamentalist preacher -- like Bible Bill Aberhart -- who abandoned the pulpit for government.