The hard question about the merchants of austerity: Are they dopes or liars?

Edward Harrison

by Ken

I encountered Edward Harrison's cute little graph in Ian Welsh's June 25 post, "Greece and the Emperor's New Clothes," in which Ian noted that a commenter, markfromireland, had pointed out that "Oliver Blanchard, the chief IMF economist, had made the following assumptions about Greece in July of last year":

1. The Greek economy would grow by three percent both this year and every other year until 2020.
2. Inflation would average between one percent and two percent a year both this year and every other year until 2020.
3. The Greek government would run a primary budget surplus of four percent a year.

"As MFI points out," Ian wrote, "at best, these assumptions are delusional. Greece is in forced austerity; they aren’t going to make these targets." And Ian noted a point made by Edward Harrison, as reflected in the graph: that "the IMF revised down its estimate for Greece’s 2014 gross domestic product by some 22 percent in the space of 18 months."

On this basis Ian proceeded to the "old" question: "Evil, or stupid?"

We'll rejoing him in a moment, but first let's go back to our last post, in which Gaius Publius brought us up to date on the Greek financial mess, which you can't do in any kind of honesty without recognizing that the "bailout" deal on which Greece has been formally in default since July 1 was doomed from the moment it was signed, if not sooner.

In his post, GP quoted Jeroen Dijsselbloem, the Dutch finance minister and current president of Eurogroup, the collective of Eurozone finance ministers:

I take note of the outcome of the Greek referendum. This result is very regrettable for the future of Greece.

For recovery of the Greek economy, difficult measures and reforms are inevitable. We will now wait for the initiatives of the Greek authorities.

"Difficult measures and reforms," eh? For sure. But not the ones imposed on the Greeks, which have had their inevitable effect. As Ian wrote in that June 25 post:

Austerity is a reduction in demand. Reduction in demand leads to economic activity being lower than it would be otherwise. Governments who spend less money buy less stuff, this is indisputable. Then, everybody has less money and almost certainly buys less stuff as a result, thus reducing the size of the economy.

Meanwhile, money has been given to rich people and corporations who, mostly, have not spent it and when they have spent it, they’ve spent it on luxury goods.

The merchants of austerity love sounding like prophets of fiscal responsibility, demanding that economies decimated by a supposed history of devil-may-care fiscal irresponsibility take their medicine, and never mind that said medicine has the all but invariable result of choking the economy in question.

The point is that this isn't news. It's a point that has been repeated here countless times, often quoting Paul Krugman, who has been trying to inject this note of basic sanity into a predominantly insane international play-acting show. It shouldn't, for example, have been necessary for British Prime Minister David Cameron to prove the econonic deadening effect of "austerity" when he came to power in 2010, but he did so anyway, and still, as far as the merchants of austerity are concerned, the point is a mystery

Which brings us back to Ian's post. How is it possible for theeconomists of the economic elites still not to know that their notion of austerity doesn't rescue failed economies, it seals the failure in place?

Austerity, Ian notes, "is sold as a way to make economies better."

You cannot, as a government or quasi-governmental agency (like a central bank or the IMF), admit that austerity will make the economy worse and many of the people in an economy to which it is applied worse off.

The question, then, is the old one. “Evil, or stupid?” Is Blanchard, for example, such an ideologue that he believes the assumptions which allow him to forecast a better economy under austerity? Are the other economists who have made similar forecasts similarly stupid? I mean, assuming moderate stupidity (normal), they might have believed it in 2008 or even 2010, but we’ve seen the effects of austerity since the financial crisis, and that’s going on seven years.

WHAT YOU DO TO KEEP YOUR CUSHY JOB

"These people are either very stupid," Ian continues,

or are doing what they feel they must to keep their jobs and their membership in a very lucrative club. If they were to say, “No, these policies don’t work,” would they keep their jobs?

We know that austerity doesn’t work, Ian writes,

if by “work” you mean “improve the economy more than not being in austerity would,” we do. It’s only ever worked in theory by making very dubious assumptions, and it has never worked in practice.

So, at this point, if you believe austerity works, you’re either an extraordinarily blind ideologue, or you’re crooked, on the payroll, and know what you’re doing.

Of course there could be another question here: Is there some other way of defining "works" as it relates to austerity? Indeed there is:

Austerity is the policy that the IMF, most central authorities, and all neo-liberal parties (which means almost all parties in power in the EU) believe in. It is a policy which works: It puts public assets up for sale which would not be otherwise, so that rich, private investors can buy them up. Combined with “unconventional monetary policy” (the two are Siamese twins), it makes sure that the rich get richer, corporations are flush with cash they do not use to hire workers, and that everyone who isn’t rich, or part of the close retainer class, loses.

You really, really don’t want to fall out of that close retainer class. They are paid very well ([IMF Managing Director Christine] Lagarde receives a six hundred thousand per annum salary, entirely tax free), they are treated well, and their future job prospects are secure, as are those of their families. [Emphasis added.]

Once you realign your definition of "working," it's clear that austerity is. As Ian says, "it has performed exactly as expected."

Its advocates are its beneficiaries. The people who enforce it are benefiting as well and there is a sufficient constituency, both at the elite level and the common level, to keep it going (remember, Cameron was re-elected in the UK, and Labour got many votes when its essential promise was “slightly kinder austerity”). A few countries (Germany, for example) are winning under this policy regime.

So austerity will continue. It is a successful policy which does what it is supposed to do and which has a constituency sufficient for its continuation. It must be sold by lies, to be sure, and many of those who sell those lies probably believe them, because they personally benefit from pushing austerity and people prefer to believe that they are honest and working for good.

Others, I am certain, know it is being sold with lies.

Ah, so there are both dopes and liars!

Who falls into which camp? Who knows? The end effect is the same.

In conclusion, Ian notes: "Beatings will continue until morale improves."

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