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The Austerity Scam

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The key political word for 2011 is going to be Austerity. No, not Deficit, although some, including President Obama, have apparently been hoodwinked into thinking so. The public relations campaign manufacturing hysterical fear about the federal deficit is actually agitprop, whose purpose is not so much to reduce the deficit as to enforce austerity on an olympic scale.

Controlling the deficit is the rationale, actually the excuse, for imposing austerity, the austerity is the means to an end, and the end is the final transfer of almost all wealth and power into the hands of the financial and business oligarchs of Wall Street and the globalized elite. Remember, when the Wall Street meltdown occurred, Bear Stearns went under, and the world financial system teetered on the brink of the abyss (or so we were told), some of us said the whole affair bore a striking resemblance to what Naomi Klein called Disaster Capitalism in her book The Shock Doctrine.  We asked, Was it now the turn of the United States to suffer through the brutal “reforms” forced on third world countries, Chile, Argentina, even the former Soviet Union by Milton Friedman and the free market theorists of the World Bank and the IMF?  It seemed almost a silly question, since it was, after all, Americans themselves who had treated those other countries like lab rats in an economic and social experiment based on conservative Friedman economics. The answer, I fear, is Yes, it is our turn.

This assessment is not intended to trivialize the very real economic and fiscal problems in which the United States and the Western economies are mired (most of the rest of the world either did not succumb to the same degree, or has pretty much already pulled out of the downturn).  The solution to these problems offered by what Mark Ames calls the Washington-Wall Street power circuit is Austerity—- austerity not for the rich, mind you, but for the rest of us.  It is trumpeted as “the answer to our problems—- problems that were created by the same establishment which wants to make us scream in pain again.” (Mr. Ames is the author of the book Going Postal: Rage, Murder, and Rebellion: From Reagan’s Workplaces to Clinton’s Columbine and Beyond). The irony is that austerity has been tried many times before in similar situations, and it has failed miserably, epically so, says Terrance Heath of Campaign for America’s Future. That is, austerity as such is the wrong answer to what may be the wrong question, but imposing it serves other purposes, purposes of that Washington-Wall Street power circuit, whose agenda is not simply getting a handle on the deficit.

The intent of the big austerity is Shock and Awe, producing such severe economic pain and social stress that the slate can be wiped clean, and the system then so completely “reformed” that the America which comes out the other side will be very, very different, much more to the liking of the elite financial oligarchs who will have engineered the change, and who will end up owning an even greater portion of America’s wealth than they do now.  

The United States, in other words, is being deftly guided on a path which will convert us into a two-tier society with a two-tier economy composed of the top one-half of one percent who will control as much perhaps as 98 percent of the country’s wealth, with the rest of us down below, the “little people.” The shell of a democratic republic will no doubt be preserved, with window-dressing elections complete with patriotic myths about American exceptionalism, but the reality will be that  the American military machine and American power will actually be used by the elite not for American national purposes, but to protect and enhance the businesses and privileges of the elite, even more than it has been. (Why do you really think we invaded Iraq?)

EXAMPLES OF PRACTICING AUSTERITY

What has happened when conservative economics actually did impose austerity policies? Ames points out that the most typical yet most catastrophic test of the austerity medicine was Germany in 1930 under Chancellor Heinrich Bruning, “himself an austere centrist,” just as the Great Depression was gathering steam all across the world.  Brunning learned Austrian economics under Friedrich von Hayek at the London School of Economics—- exactly what is today being promoted by the Wall Street Journal, the Friedman free market theorists of the Chicago school, Ayn Rand, Ron Paul, and the Tea Partyists of the Republican Party.

Bruning attempted to hoist the German economy out of the Great Depression by establishing “a strong currency, which he tethered to the gold standard, and a balanced budget through brutal cuts in wages, pensions, and unemployment benefits, and hikes in taxes and fees,” all with the approval of Germany’s major industrial titans (the taxes were for the little people, not the titans). “After just two years of ‘austerity’ measures, Germany’s economy had completely collapsed: unemployment doubled from 15 percent in 1930 to 30 percent in 1932, protests spread, and Bruning was finally forced out,” the Nazis and Communists were voted in, and by 1933 Hitler and the Nazis took over.

How did von Hayek and the conservatives explain such a dismal result? Typically right-wing, they re-wrote history, pretended that Bruning had not existed, and that Hitler “came to power because Germany’s government became too fat even as Bruning enacted massive spending cuts… the German people [were] a bunch of spoiled welfare queens living too high on the socialist hog,” when the truth was, they were “starving in the streets suffering from unbearable pay cuts.”

This was the same time frame when the American President Herbert Hoover first tried a similar Austrian school austerity approach, then reversed and started spending government money; he was replaced by Franklin Delano Roosevelt (who at first complained about Hoover’s spending), who finally turned to Keynesian deficit spending and big government programs to ameliorate the Depression. Interestingly, despite the statistical fact that Keynesian economics was beginning to work in the U.S., FDR pulled back on hefty government spending in 1937, and began following more conservative policies at the urging of American business—- the economy promptly went into a double dip, and did not pull out until the enormous deficit spending of World War II.  

Ames pointed out that when England duplicated Bruning’s policies, up to half the Royal Navy staged the Invergordon Mutiny of 1931 against the austerity program, sailors took over ships and scared the establishment, which feared a Bolshevik revolution right in England; Britain thereupon abandoned the gold standard and eased the wage cuts.  

On the other hand, Sweden in the 1930’s followed a “mixed economy,”  never suffered like the “austerity-dosing countries,” and was booming by 1932.

Heath describes Ireland, a more recent example of the devastating effects of conservative economics. The Heritage Foundation in 2009 named Ireland to the top 10 countries on its Economic Freedom Index, glossing over the fact Ireland was already showing signs of economic trouble, instead lauding its “low level of corruption, efficient business regulations, and competitive tax rates.”  Ireland’s economy relied on exports, some 90 percent of which resulted from foreign-owned multi-nationals that had been attracted to the country when Ireland deliberately cut its corporate tax rates to 12.5 percent and added a 20 percent cut in capital gains tax rates for property investment. The multi-nationals used Ireland as a tax haven to escape taxes in their own countries, but did not create many jobs for the Irish middle class.  

Thus, Ireland did not in fact benefit from the tax cuts, and was unable to develop any reserves to build domestic infrastructure or to deal with inevitable difficulties when their housing bubble burst and the financial meltdown came. Moreover, those “efficient regulations” admired by the Heritage Foundation allowed Irish banks to run amok without punishment, and then to receive lavish bailouts when they stumbled.  

The Irish answer to  was to cut services, including education and health care, hoping to convince investors that “Ireland was serious” about its economic problems. The effort failed, the economy shrank more than it would have had the government spent money on stimulating it, investors fled, and Ireland has had to get a bailout from the European Union, a bailout which keeps growing.  Even worse, the price for the bailout set by the IMF and the EU is a dose of more cuts (15 percent) in social expenditures, slashing public jobs to where they were in 2006, and reducing the minimum wage.

The Irish understand that austerity as practiced by conservatives is a disaster, “that the benefit will no more ‘trickle’ down to them than prosperity has trickled down to the rest of us from the rich enjoying their tax cuts.”  Heath quotes comments from The Guardian:

“We were told that we were all in it together, even as the millionaire speculators were subsidised by the taxpayer, their lavish pensions and remuneration packages guaranteed. About 300 people in Ireland continue to live like rock stars, while 4 million of us foot the bill. We have socialism for bankers, the ferocities of the market for everyone else. We are cheated and lied to, and every family is now paying…. I cannot remember the boiling anger that now exists here…”

CONCLUSION

It is Ames who says bluntly about conservative economics, that “these measures almost always end in the worst-case-scenario imaginable: economic disaster, violence, and repression.” Naomi Klein agrees, providing 466 foot-noted pages of historical examples in The Shock Doctrine. Heath carries it further, noting:

“There are depths of economic desperation from which people do not rise, mainly because it is not intended for them to do so. Austerity is a locked gate to upward mobility. The economic message is that most people will have to get used to a far lower standard of living. And permanently, for the recipe of spending cuts and tax cuts for the top 1 percent has yet to yield anything but increased inequality—- prosperity for those at the top, and penury for the rest of us.  Given the insistence on destructive policy when all the evidence shows it to be just that, it can only be assumed that more pain, more inequality, and no remedy for either is the desired outcome.  The result will probably be greater economic inequality that cements into economic injustice passed from generation to generation.”

The sane and sensible example of Sweden’s mixed economy in the Great Depression is never, ever, mentioned nowadays; Keynesian economics is routinely demonized and dismissed.  It is as though we have no choice but Austerity as designed by conservative economists.

True, every case is a little different. America has some added nuances: we have two wars ongoing, we support an enormous defense establishment plus the war on terror, and the dollar is the world’s reserve currency—- for now, anyway. Nor are we tied to the gold standard, but that might change, too, if Republicans take total charge. But I find it significant that the secular religion of Free Market Capitalism espoused by the Republicans and their corporate backers is essentially the same free market capitalism of Chancellor Bruning in 1930 Germany.  Even more alarming is that many conservative leaders and investment newsletters insist that, not only is the American economy going to have another down leg, a double dip (and they seem bound and determined to create it through policies they are promoting), but we are also going to face riots and social unrest “like Greece,” not to mention steep inflation, so everyone should buy gold and stock up on food and ammunition. They seem intent on creating a self-fulfilling prophecy. If ever we needed strong progressive political leadership, it is now.  

  • Hugo Estrada

    I think this analysis is right, and that worries me.

    Back in the 30s one of the reasons for trying Keynesian economics was that the Soviet Union existed. It was saving capitalism or humanizing it, however you want to see it. It was important to share the gains of capitalism with the hoi poloi so that they wouldn’t join the Bolsheviks. You may have notice that there aren’t any Bolsheviks or people taking their role now.

    The second thing, about riots in the U.S., I strongly doubt that. The U.S. lacks a real protest culture. The country is too big, and even if there were some riots in a given city, they wouldn’t spread.

    Look at Mexico: it has been hit with neoliberalism since the 80s. It destroyed the middle class that had been created in the 50s and 60s, pushing at least half of the population below the UN poverty level. No mass riots there. And by this point, most of the people in the world have been victims of right-wing pro-rich policies. I don’t see them rioting.

    What those conservative leaders and investment newsletters are experiencing is what could be called slave holder’s guilt: the knowledge that you are hurting people so much, that you believe that they will justly strike back and take revenge on their oppressors.

    But historically this really doesn’t happen. It is very rare. To take the example of Germany in the 30s, it didn’t end up with a mass protest against the right who made them miserable. Instead, it gave rise to an even more right-wing regime.  

  • Teddy Goodson

    is not on the table, you notice. I refer to the austerity which includes the rich, rather than protecting them. A lot of the perceived danger seen in growing budget deficits and the national debt burden could be easily relieved if we eneded the Bush tax cuts for the wealthy, and if we exacted a very minor transaction tax on the rapid speculative trading in derivatives (such a tax would also discourage the unproductive casino-type gambling with other people’s money engaged in by Wall Street).

    There are ways to deal with the real problems we have, and with the structural defects in modern financial capitalism, ways other than crushing the middle class and punishing the little guy. Funny how that never comes up in public discussion.