Krugman writes: "Europe has had several years of experience with harsh austerity programs, and the results are exactly what students of history told you would happen: such programs push depressed economies even deeper into depression."
Portrait, New York Times columnist Paul Krugman, 06/15/09. (photo: Fred R. Conrad/NYT)
Europe's Economic Suicide
16 April 12
On Saturday The Times reported on an apparently growing phenomenon in Europe: "suicide by economic crisis," people taking their own lives in despair over unemployment and business failure. It was a heartbreaking story. But I'm sure I wasn't the only reader, especially among economists, wondering if the larger story isn't so much about individuals as about the apparent determination of European leaders to commit economic suicide for the Continent as a whole.
Just a few months ago I was feeling some hope about Europe. You may recall that late last fall Europe appeared to be on the verge of financial meltdown; but the European Central Bank, Europe's counterpart to the Fed, came to the Continent's rescue. It offered Europe's banks open-ended credit lines as long as they put up the bonds of European governments as collateral; this directly supported the banks and indirectly supported the governments, and put an end to the panic.
The question then was whether this brave and effective action would be the start of a broader rethink, whether European leaders would use the breathing space the bank had created to reconsider the policies that brought matters to a head in the first place.
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I call it robbery. And in your description you explain why any inflationary policies will not be followed. Inflation is the best way to decrease the value of what was stolen and increase the value of what was left behind. The opposite effect of what the shortsighted 1% intend.
A side note here...Common sense tells us that austerity in the midst of a depression, is suicide...yet they, the BANKS are forcing this suicide on the world...I am just wondering since the Banks with their worthless paper currency that has NO value are taking Government IOU's for the "bail out" might they eventually foreclose on the governments and control the world...Just food for thought!
The ECB did not "come to the rescue." I don't see how Krugman could be so wrong on this. The ECB took over bonds that were essentially worthless. Banks should have had to eat those losses. That's what investing is -- sometimes you make money and sometimes you lose. Banks should have taken the losses since they created the economic crisis by selling nations and others fraudulent investments that collapsed economies and thus tax revenues.
The right answer for Greece and others would have been to default on their foreign debts. This probably would have happened in Greece and Italy had a referendums been allowed to take place. The people there would have refused to borrow more money from the ECB. But the presidents who proposed the referendums were summarily thrown out of office by the ECB and European Parliament and ex-Goldman Sachs bankers put in to head the government of Greece and Italy.
I call that "genocide" -- the killing of people. No big banks are being killed or committing suicide. They are being rescued or bailed out. They are being allowed to cash in their bad investments for good money.
I wonder what Krugman means by this statement? It could be an endorsement of austerity measures, the cutting of healthcare, pensions, or state spending on human needs. That is the reconsideration of politics that banks are forcing on Europe. Why is this brave?
The right reconsideration of politics would be a total re-regulation of banking and investing. Banks should serve the public interest. They should be run as non-profits. Investments like derivatives should be illegal. Whole nations should return to economies based on production of goods and services. Finance capitalism and neo-liberalism should be so tightly regulated that it simply makes no profit and then it will go away.
When Greece got its first bail out loan from the ECB (really from Germany) it was required to use some of the loan to buy two German made submarines. The contract for the submarines was made before the collapse of the Greek economy and should have been cancelled. But the ECB forced Greece to continue it. This shows where the ECB's priorities stand -- with German capitalists and not with the people of Greece. You can't eat submarines. They are pretty much useless. That's the kind of policy reconsideration s the world needs -- stop buying weapons on credit.
The opposite of Keynesianism, neo-liberalism or supply side econocmics, says that government stimulus should to go the biggest corporatios. Neo-liberalism is also finance capitalism. It has nothing to do with human beings and everything to do with capital markets or gambling. The money goes to banks who gamble in the investment markets.
Supply side economics is really not an economic theory. It is just theft of national wealth by the 1%. Gambling on wall street is not investment and has no relation to the economic well being of a nation. It is just a psychopathic addiction to risk and money as an abstraction.
"A man is starving and is growing weaker every day. His wife takes him to doctor, the doctor tells her to make sure he reduces his intake of food, until he grow stronger. Once he is strong enough to return to work, you can slowly feed him a little more."
That is the austerity solution, while people are starving for jobs; austerity reduces those jobs.
If her husband finds a job before he dies of starvation, it will be a non-union job and his wages will not keep up with Krugman's inflation. The poor man continues to starve, and what savings he still has buys less.
I think you are taking the analogy way too far. A typical Liberal/Progres sive error. We get all analytical and dissect every argument. Read my first statement:"How to explain this to a low information person"
My point is that we have to dumb down the talking points in order to compete on the field of ideas. Most folks just want their analysis to be simple, easy to understand and spoon fed. That is why they watch Fox.
The unemployed benefit? At this time, though their plight is awful to contemplate, they are far fewer than the number who have jobs and savings. The large number are the ones who will pay for the inflation you advocate.
Paul Krugman is not a friend of the 99%. He is a suit, just as the banksters are.
I am a democratic socialist, hardly a conservative! That does not mean that I approve of inflation, which is way of stealing from people who have savings. Take from the wealthy not from the savings of hard working people, Mr Krugman!
If the price of chicken, fruit and gasoline is the result of regulation by the Department of Homeland Security, why don't you explain your bizarre assertion?
Home sales are helped by inflation, true! It was that help that created the bubble for which our economy is now paying. Your approach is to re-create the bubble and another, future burst. Far wiser to let housing prices recover without more inflation than we already have, which is considerable. You write as if we have no inflation now. I suppose you accept the BLS's CPI as a true measure. Do you also believe in the tooth-fairy?
Why should businesses invest in the US to create jobs, when they can and do get far more return by investing in cheap labor countries? You are applying the Keynesian theory as if this was the US pre-1970s. Keynes was right but only within the scope of his assumptions. Those assumptions are not valid in the 21st century to date. No nation has dealt with the problems of its 99% by devaluation.
Prosperity by exporting goods is not mercantilism. Mercantilism is trade for the accumulation of gold or silver. Exporting more than importing does raise the value of a nation's currency, but that tends to restore the balance of trade - which is good.
The US exports arms and financial paper. Tyrants buy the arms, suckers buy the paper. It is not enough to balance our imports, and our currency will continue to decline once the euro has stabilized. US inflation will really take off at that time, and we shall have austerity from both budgetary cuts and inflation.
The American empire is often compared with the Roman, because Rome's declined and ours is declining. But the Roman was successful for hundreds of years! Ours was never successful. It has always cost the American people more than we gained from it in the years since WWII.
1. Impose high penalties for outsourcing.
2. Return to protectionism, which developed our country in the 19th century.
3. Restore Glass-Steagall.
4. Unburden regulatory agencies of the insane obligation to promote the industries they regulate.
5. Prevent corporations from contributing to candidates or to PACs of any sort.
6. End the national over-investment in armaments and invasions of foreign countries.
7. End the national investment in the nuclear power industry, which is our greatest source of terror.
That would be a good start.
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