Austerity = Economic Destruction

Neoclassical economics is senseless. It’s the philosophy of the rentier classes who have been waging war on the Enlightenment for 300 years now. If you’re down with neoclassical economics, Libertarianism, austerity, balanced budgets and whatnot, you’re in bed for the forces of the Counter-Enlightenment beginning with Smith and Ricardo 200 years ago.
Recall that these are the folks who consider themselves the “natural rulers of mankind.” The Enlightenment was a move towards democracy and popular rule, and the rentier class has been furious ever since. What do the rich want? The rich do not just want to pay few to no taxes. This is a falsehood. They want much more than that. In my opinion, the rich actually want to be paid tribute! Notice that the war on Obama really picked up when he said some nasty things about rich people? That’s when the media war on him really opened up. It’s to be expected, as all of the media is owned by the rich. They don’t take kindly to insults. They’re still furious over the gunning down of the Romanovs 90 years ago. This was an insult that must be paid back in spades for as long as memory allows.
Want to fix the economy? The change needs to come from the private sector, not government. And if the private sector is frozen up and the banks are not making loans so the private credit market is dead, what then?
When the private sector is saving and not spending, there is a lack of demand and the private credit market is dead, then the state must step in. There’s a lack of money in the private sector, so the state must rectify that unbalance with deficit spending, stimulus, etc, in order to keep the economy moving, lower the rate of unemployment, take care of the currently unemployed, create jobs, etc. This deficit spending and stimulus must continue for as long as the private credit market is frozen and dead in the water.
Neoclassical economics is a joke. Neoclassical economics is what created the financial disaster that blew up the US economy, took down much of the world economy with it, and left us in the mess we are in.
Neoclassicals would have us engage in mass deficit cuts in the middle of a downturn. This is not economic salvation; it’s economic destruction. Look at the lesson from Ireland:
Ireland began cutting back deficit spending in 2008, when its banking crisis began to spread and its budget deficit as a percentage of GDP was 7.3 per cent. The economy promptly contracted by 10 per cent and, surprise, surprise, the deficit exploded to 14.3 per cent of GDP.
This is what will happen in every country that engages in deficit reduction austerity. The more you cut the deficit, the more it grows!
Latvia is the poster child for the neoclassicals. They want all of Europe, especially Greece, to follow the wonderful example of Latvia. Latvia undertook massive deficit reduction austerity cuts and the economy contracted a full 20%. Latvia’s central bankers are currently running a budget surplus. The idea behind this surplus: to lower wages. Neoclassical economics is always about lowering wages, everywhere and in any way. The public sector has already taken a 30% wage cut. Now they hope to spread that to the private sector. Property values crashed by 70%, and homeowners are on the hook for life, since there is no foreclosure in Latvia. And so we have the return of debt peonage. This is what the deficit hawks have in mind for most of Europe: Depressions, falls in GDP of 10-30% and wage reductions of up 30%.
This stuff isn’t even economics, or rather, it’s bad economics. More accurate, it’s politically driven economics. What’s the game here. Apparently a project by the rentier classes (neoclassical economics is the economics of the rentier classes) to roll back 300 years of the Enlightenment.
The lie is that the austerity is supposed to be produce “confidence” in the private sector. This is nonsense. Instead the agenda is political. To roll back social security, pensions, health, education and other spending on human needs, and especially to increase unemployment so much that it drives down the wages – the Latvian central banker was explicit on this. This is a logic of self-destruction. Austerity will lead to depressions, decreasing tax revenue and actually paradoxically increasing deficits. In Latvia, it has resulted in mass brain drain and capital flight as skilled workers and capital have fled the nation.
Clearly, the European nations are not pursuing the interests of the majority of citizens nor even of their industry. This again contradicts an essential axiom of neoclassical economics – that humans will always act in their own self-interest. What logic is there in the philosophy of economic destruction?
The reason is that neither politicians nor citizens are calling the shots anymore. Instead, as in the US, the bankers are. It’s as if we have an International Dictatorship of Bankers. Finance capital has gotten itself into a horrible mess by their own devices. In order to keep their game going, they operate the economy to benefit the banks instead of the logical alternative, running the banks to benefit the economy.
So the austerity measures are to rescue the financial sector. The only way to rescue the financial sector is through hammering social security, health care, education and workers and also selling off government property via privatization. The financial sector needs huge bailouts from the state to deal with the mountains of toxic assets that they are loaded up with. The state can’t loan the money. So the bad debts of the bankers must be passed on to workers and industry. This will be hard to sell to people, so the bankers sell it to us by saying that our poverty today will result in our prosperity tomorrow. Lots of people are buying it, as you can see in the comments section.
For 50 years now, the IMF has been imposing austerity plans on 3rd World countries. The results are dismal. It’s not a road to prosperity at all. It’s been 50 years of failure of the worst kind. It hasn’t benefited those countries one bit. Who has it benefited? Who knows? The 1st World, who bought up public assets in those nations for 10 cents on the dollar? If it didn’t work in the 3rd World, it won’t work here. 50 years of failure is enough evidence. What more do you need?

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0 thoughts on “Austerity = Economic Destruction”

  1. To that to the Cubans:
    http://www.businessweek.com/ap/financialnews/D9I7OTJO0.htm
    Cuba’s leaders lay out details for layoffs
    Many of the workers tossed from state jobs into the marketplace could see their new enterprises fail within a year, officials acknowledge.
    The plans, along with a timetable for which government sectors will feel the ax first, are laid out in an internal Communist Party document obtained Tuesday by The Associated Press. Cuba on Monday announced plans to cut 500,000 state workers by March 2011 and help them get work in the private sector, in the most sweeping reforms instituted since President Raul Castro took over from his brother in 2008.

  2. excellent post Robert.
    What’s happening in Latvia is just awful.
    For 50 years now, the IMF has been imposing austerity plans on 3rd World countries. The results are dismal
    exactly

  3. To Rob:
    Neoclassical economics is a joke. Neoclassical economics is what created the financial disaster that blew up the US economy..
    One could argue that it was closer to a misuse of Keynesian theory…after the dotcom bubble Greenspan dropped the interest rates to levels that were too low which set the housing bubble in full motion. (and possibly to get GWB elected again…)
    Greenspan was a serial bubble blower who loved animal spirits.

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