Tag Archives: austerity

To weep or laugh?

The intellectual excuse that lead to economic policies that have been followed in the U.S. and the EU in recent years is a book from economists Carmen Reinhardt and Ken Rogoff. In this book the authors argue that once a country has more government debt than 90% of GDP economic growth is sharply reduced.

This has been an important part of the reason for deep cuts in social services, cuts in wages and cuts in social security in Greece, Spain, Ireland, Portugal and more countries. Simultaneously, the same countries, and ultimately, European taxpayers have acquired large amounts of private debt, without getting anything in return through the so-called saving of the banks. This is perhaps the biggest robbery of tax payers ever.

One has to weep

What really is a laughable matter is that Reinhardt and Rogoff had made a tiny mistake in the spreadsheet. This small error meant that the result of the research was completely wrong. There are, in other words no longer any intellectually defence for the cuts and the robbery the inhabitants in the EU are exposed to.

To steal a bit from Bloomberg:

The paper, “Growth in a Time of Debt,” concluded that countries with public debt in excess of 90 percent of gross domestic product suffered measurably slower economic growth. It has been cited by U.S. House Budget Committee Chairman Paul Ryan and European Union Economic and Monetary Affairs Commissioner Olli Rehn in defense of efforts to drive down budget deficits.

All in all tears more than laughs are appropriate. For the banks and the bank owners have received their unfair share. And therefore Paul Krugman is right here:

If true, this is embarrassing and worse for R-R. But the really guilty parties here are all the people who seized on a disputed research result, knowing nothing about the research, because it said what they wanted to hear.

Lesson: never trust anyone who say that we need to take money from ordinary people and give them to people who already have the most.

Who loses in Europe?

Alexis Tsipras is the leader of Syriza Foto: Joanna/Wikipedia Commons

It may very well possible that Greece and not Germany who is holding with the best cards when it soon is to be decided what happens to the euro.

Marshall Auerbach writes in a guest post on the blog to Yanis Varoufakis that:

Alexis Tsipras is a good man. At least he’s a very good poker player. He hasn’t yet capitulated to this massive orchestrated pressure and made it clear up front in the Wall Street Journal Germany that there are options for the Greek people which the Germans won’t like: He is, in short, the first Greek politician to use the his country’s leverage over creditors.

Furthermore, it follows that:

The German response so far? “Oops. This guy is blackmailing us. What shall we do?” Because Germany as a creditor nation faces huge losses if the entire banking system starts to come under pressure, to say nothing of the end of their vaunted “wirtschaftwunder” as the entire eurozone implodes. Greece, by contrast, has already experienced 5 years of unremitting economic austerity. The country has been virtually reduced to the state of a barter economy. What has it got to lose at this juncture by refusing to roll over to the Troika?

I believe that the austerity line now being taken in Europe to rescue the euro is a recipe for economic decline. An economic downturn that primarily will affect people who do not sit at the top of the social pyramid.

Nobel Prize winner in economics, Paul Krugman, writes on his blog:

So Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast.

I think Europe and the somewhat the United States is about to make the same mistake as when all countries were to return to the gold standard after the First World War. The policy led to mass unemployment and poverty. About this parity policy the  Norwegian Encyclopedia says:

University economists and others warned against the parity policy, because deflation would cause bankruptcies and major restructuring difficulties for businesses, while the Central bank director-Rygg claimed that the parity line was both morally right and necessary to maintain international confidence in the Norwegian krone. (my translation)

Is there anyone other than me who recognizes the moral politics rather than economic reality as the foundation of what is happening in Europe now?