Friday, April 19, 2013

The Foolishness of Austerity Economics

Paul Krugman has been writing about the stupidity of austerity economics. Here's his column from this morning.

Also, there's a new book by David Graeber that fills out the long history of debt, explaining the usefulness of debt on a societal level, shared public debt. The national debt so hated by Republicans and FoxNews fulminators was created by a founding father named Alexander Hamilton. You can see his picture on the ten dollar bill in your pocket. How did we get to where we are now? The recent past is more dramatic and foolish and catastrophic than the longer more rational, more prosperous period between FDR and Reagan. We may be emerging from the catastrophe, but there are powerful people who hold our economy hostage: call them the Austerity Economists. The debt haters who also (no coincidence) created the most damaging debts we're dealing with now.

In the mid nineties, after Clinton had raised some taxes on high earners, fostering a period of sustained growth, there was also an effort made to balance the federal budget, to pay our debts down. Good timing, really. It's good to do this when the economy is up and revenue streams are steady. Keynes said this. But there was a worry among large investors: what would happen when the safest investment of all, the US Treasury note, became less plentiful, became rarer because the government was borrowing less? There was serious concern. Nothing bad happened.

Then Bush Jr. was appointed president, and the prudent Democratic money policies were thrown out. Taxes were cut and spending exploded. Unnecessary wars were declared and pursued profligately. War was paid for outside the budget. More taxes were cut. New security bureaucracies were created. A huge unpaid benefit was given to seniors. Regulations were relaxed on speculators. Huge pools of cash were sloshing around in the pockets of corporations and hedge funds, which was wagered recklessly. We experienced an investment class bubble. It wasn't a housing bubble really, it was driven by rich people with too much money chasing too few plausible investments during a period when average households were feeling stretched and losing buying power.

Then the economy collapsed. The last catastrophic gift from the Bush years. Obama was elected. Responsible people came back to the helm. Why has the economic recovery been so sluggish? Financial sector collapses take longer to recover from. The financial sector itself recovers––look at the profits of the large banks and hedge funds––but the damage to the wider economy, collateral damage done by their crimes to innocent people and households takes a long time to repair. Millions of people will never recover. Their incomes will never recover. Their future will be significantly diminished because of the foolish greedy things done by cowboys in the financial sector, and the millions of households harmed will never be able to earn and spend like they could before, like they might have if President Gore had been able to continue the more responsible policies of the Clinton administration. (The man was elected, after all.)

The most frustrating thing is the foolish Bush policies still have a lot of influence. His advisors took well-paid and highly influential positions in the large financial institutions that Bush failed to regulate, where they continue to influence financial thinking and coerce policy. Bush people still have hands on the financial tiller because our economy is largely controlled by large private entities. Even the public institutions are influenced by large financial players.

The most damaging and weirdly contradictory policy Bush's Boys have pushed, and they've pushed it hard, is Austerity.

Imagine a person is admitted to the ER with massive bleeding. The Austerity policy would dictate the doctors not waste blood donors' blood on this person. BushThink says it's better to give this blood supply to people who already have enough blood, who aren't in danger. If those healthy people don't need it now, it's best to store it in case they'd like to have it in the future. Austerity policy preaches restricting help. Hungry children are helped best by withholding food. It is a do-nothing policy.

The rationale is that households restrain spending when revenue stops. A responsible thing for a household to do. But an economy is not a household. Alexander Hamilton created the national debt to help the economy grow. The debt was an engine for infrastructure investment. It turned the U.S. from a backward nation into the largest economy in the world. Deficit spending bought the western half of the country. It laid the railroads (Republican president) and built the interstates (Republican president.) Why have Republicans turned from prudent and productive growth policies to unproductive and stingy ones? Possibly because their large donors no longer feel invested in this country––they're not as invested because they bank in Switzerland and the Caymans and Bahamas and they don't pay the same percentage of taxes the rest of us do. Massive deficit spending for WWII hoisted us out of the last Great Depression, something FDR's more cautious deficit spending failed to do during the 30s.

Another medical analogy: imagine a patient comes into the ER. His heart has stopped. Austerity policies would say Do Nothing. Wait. Pray. The more Keynesian doctors would use a defibrillator to jolt the heart back to life. Austerity doctors would say that's a waste of electricity. We had an economy in 2008 and 2009 that needed a jolt. TARP gave that jolt but subsequent stimulus was blocked and watered down by Austerity believers, do-nothing purists. These foolish ideologues, BushThinkers, also steered most of the stimulus into the pockets of the perpetrators of the collapse rather than into the households that would have spent the money. The bankers who got it banked it. They sat on it. They didn't see enough opportunities for profitable investment so the money didn't enter the consumer economy where it would have created opportunities for productive investment.

We have a political reality that gives veto power to the big banks through their proxies in the Republican Party. So we do nothing. There is a tacit veto preventing help from getting to the households that most need it, who would quickly spend it and stimulate the economy, who would spend that money at stores down the street. What's happened instead is the Big Money people, the BushThinkers, have taken the American economy and buried it in their backyard, waiting for their private opportunity to exploit it profitably, but an economy dies when it's buried. The BushThinkers think there are only two ways to invest money: in their offshore accounts or on split second wagers on the movement of the markets. This oscillation between ancient economics and casino economics isn't good for us.

The other rationalization for the Republican Do Nothing Austerity Policy (and you've heard it recited over and over again by the hedge funders' Republican proxies in Congress) is that to deficit spend now would swell the national debt and place a burden on our children. Which sounds rational to households without any money... but it isn't. It's not what we do as a community. Republican policies begin and end with the individual and damn the community.

Scrooge has become the dominant philosopher of the moment. "Let them die then, and decrease the surplus population."

Don't deliver money where it's needed; deliver more where there is too much already.

Don't deliver help where it's needed; help the people whose houses are full of underpaid help already.

Don't feed the hungry; feed the well fed, feed the overfed.

Don't supply medical care to the unhealthy; insure the healthy, treat the healthy.

America needs to get its head around the basic and necessary logic of the public sector. The thinking that sends policemen and firemen and paramedics and soldiers and rescue personnel toward danger instead of away from it.

Our national wealth should help in an emergency rather than hiding under the bed.

The Republican mindset that is blocking our national recovery says "don't help" and "think only of yourself". This thinking is what is keeping us down right now. It is defunding every effort to lift us out of the ditch using community effort and community investment.

To say, as the Republicans say, and talk radio and FoxNews repeat endlessly, that using government spending to stimulate the economy would place an unbearable debt on our children, really is saying that the best way to protect our children's inheritance is to give our national wealth to the wealthy so they can put it safely in the Cayman Islands where it can lie safely idle the way the wealthy lie safely idle. They're saying that the best thing to do with our nation's wealth is to put it back in the hands of the people who wagered it foolishly prior to 2008.

What the Republicans are saying is "Austerity is a good thing for the poor." And we're all more poor than we were in the Clinton years.

Austerity, though, is like starving your children to protect their inheritance.

Whose inheritance is it? Are these Austerity economists really telling us to give that inheritance to them? Are America's grandparents deciding to spend their grandchildren's inheritance on themselves? Is there a feeling among seniors that the younger generations screwed things up and can't be trusted with spending money? The victims are not the perpetrators here.

Whose bad choices created this lousy economy? Do we really blame the very households the bad economy destroyed? Was it really the bad decisions of the wealthy bundlers and resellers of mortgages? Was it the predatory lenders? Was it the hedge funds who diverted investment away from productive categories into bizarre financial wagers? Was it the wealthy exporters of jobs, whose export of jobs is still subsidized by Bush era policies we haven't been able to end?

Was it the older generation of Reagan worshippers who decided the economy could be left unregulated? The same generation who voted themselves ample retirement but have decided to remove that prospect for their children and grandchildren? The same generation who now have free healthcare but seem happy to withhold healthcare from their children and grandchildren? We can understand their reasoning a little if we realize that once people retire they cease to be workers and become reliant on investments; their loyalties change. You could say they become different people, at once powerless and powerful. They exist in the pocket of their investment groups. They might not even be aware of the shift in their mindset. They're conflicted because they need government but they're owned by the bankers who manage their investments for them, and lobby Washington for them.

Meanwhile, because of the Republican veto of any sustained stimulus, the economy sits and waits. The generations who are still working, whose jobs are insecure, whose incomes have been flat since Reagan flattened workers' incomes, wait, and put off plans, and curb their spending, and worry. And the generation that has graduated and found its careers stalled since 2008, waits too. This last group may never recover because the generations who benefited from the long, sustained, secure and broad prosperity created by the policies of FDR, Truman, Eisenhower, JFK and LBJ, have spent their waning years supervising the dismantling of those policies and the degrading of the American economy. They decided to follow the wealthy speculators who sold the American economy and banked their gains offshore.

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Blogger pasquino said...

Austerity is Bad Economics, as explained by my friend Mark Blyth

10:16 AM  
Blogger pasquino said...

(And he wrote a book about it)

10:28 AM  

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