Written by Rob Carter   

Krugman, NYT Subject "Austerity" ~ It’s Long Past Time for Krugman to Name and Shame NYT’s Eurozone Reportage July 13th, 2014  ~ GEI Op Ed ~ by William K. Black, ~ New Economic Perspectives ~http://neweconomicperspectives.org. William K. Black, J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House Governance Committee on the regulation of executive compensation. He was interviewed by Bill Moyers on PBS, which went viral. He gave an invited lecture at UCLA's Hammer Institute which, when the video was posted on the web, drew so many 'hits' that it crashed the UCLA server. He appeared extensively in Michael Moore's most recent documentary: - Capitalism: A Love Story. He was featured in the Obama campaign release discussing Senator McCain's role in the "Keating Five". (Bill took the notes of that meeting that led to the Senate Ethics investigation of the Keating Five. His testimony was highly critical of all five Senators' actions.) He is a frequent guest on local, national, and international television and radio and is quoted as an expert by the national and international print media nearly every week. He was the subject of featured interviews in Newsweek, Barron's, and Village Voice.

Monday, July 7, 2014 provided another example of Paul Krugman explaining why austerity was an insane response to the Great Recession and the New York Times authoring another of its endless articles that assumes that austerity is essential to a Eurozone recovery.

I have no problem with the NYT reporters providing their rationale for why they concluded that Krugman was wrong and that austerity is the proper response to a recession. My problems are with the NYT reporters ignoring Krugman's views - views shared by the great bulk of economists - and with their failure to question whether austerity is the proper response to a recession. Rob Carter argues will all you theory academic economists & PhD's etc for the love of God and my reading patience, please go out and have a few months of practical experience then recognize what true economic theory wisdom needs is practical input instead of a myriad of charts, graphs assumptions & conjectures. The long held WORLD'S BEST EVER ECONOMIST WAS J.M.KEYNES and he spoke of simultaneous "austerity" with "Stimulus" in good and bad times?

What do I mean by that and did Keynes mean what I comprehend he said?

Each to it's own, is the answer, it uis factors of reason & application real money and Nation managers MUST ABIDE.(

A) THERE IS A TIME to apply each

B) A VOLUME to apply from progressive & timely deployment(

C) A FACTOR OF AVAILABILITY for each to contribute with minimal public satisfaction disturbance & voter patriotism.

(D) Factors of cause & effect as each is applied.

What I can best example is if the Nation is in debt as badly as USA do we leave it for next generation to pay off as inflation exceeds interest charge and thus reduces the burden, plus incomes are greater and repayment taxes less burdensome, and the justification they inherit the assets FOC the smaller debt repayment is small cost for the facility gained by that new generation yet provided by the past generations. Everything including finance has a price to pay.

We must also assess does the economy need a production push, or a demand pull growth impetus. Which comes first chicken or egg? Then we need to consider is it time to apply "Austerity" to proselytizing wars in lands and religious waste that should not be our business to interject in. Do we need more war machines of less of the useless stuff designed to enrich our SUPERPAC lobyists quest for plutocrat profit hoarding approved by a fool oligarchy.

At the same time we might need to "stimulate" employment (Not by foolishly throwing even more GDP at plutocrats who don't need it, but rather to employ direct hire labor from the unemployed welfare list. Remember when we give a State or District money to employ from welfare list, the cost to federal budget is only half the other halfe wage is the saved unemployment benefits we don't then pay. In fact by the time we tax the incomes newly created and the trickle up purchasing growth profits, we are spending less than half tha man's wage to get his 100% infrastructure re-building assets.

Yes there is a right set of factors to justify each class of cost and austerity or stimulus there of. QED.

Recessions occur when demand becomes seriously inadequate and industries fire workers and decrease production and investment. Austerity further reduces already inadequate demand by reducing public sector demand. Austerity is akin to bleeding the patient (the economy) to make him well. It would, therefore, be exceptionally strange if austerity were to be the optimal response to the Great Recession. We have a great deal of real world experience in dealing with recessions that confirms that austerity is self-destructive in such circumstances.

Rob Carter Yes but public sector demand decrease as J.M.Keynes remedy proposed is immediately replaced by expanding Government Infrastructure works, which are invariably lagging and or deteriorating a the budgets are stolen by more affluent and showy waster funds that were not approved at Congress Budget phase.

The U.S. Under the Automatic Stabilizers and Stimulus Program.

Even the EU recognizes this fact by providing for (minor) fiscal stimulus (deficits are supposedly capped at 3% of GDP) when confronting a recession. There is no fixed definition of "austerity" or "stimulus." The U.S. initially responded to the Great Recession through its "automatic stabilizers" which automatically produce a significant budget deficit. Consider that sentence for a moment. There has been an overwhelming consensus among economists for over a half-century that "deficits" of this nature are "stabilizing" - they reduce the length and severity of recessions. The U.S. then added to the automatic stabilizers by adopting a "stimulus" program. Due to politics (including divisions among Democrats due to the "Blue Dog's" opposition) the stimulus program was far too small (it provided only a fraction of the lost private sector demand) and had design defects (far too much of it was in the form of tax reductions for the wealthy - the category that produces the weakest bang for the buck in stimulus terms). Despite these weaknesses it produced a far stronger recovery than the eurozone.

The U.S. Moves Toward Austerity.

Unfortunately, Treasury Secretary Geithner, who has no economic expertise, increasingly became President Obama's dominant economic advisor. Geithner was a vitriolic foe of stimulus. As I have explained in prior columns, Obama became convinced that a budgetary "Grand Bargain" with the Republicans would be his legacy policy. That Grand Bargain embraced austerity. Obama and the Republicans have failed to reach the Grand Bargain, but their piecemeal bargains have pushed the U.S. steadily toward austerity, greatly slowing our recovery from the Great Recession. The U.S. fiscal deficit is now so small that the U.S. would comply with the EU's austerity regime. That means our deficit is far too small.

The Eurozone Recovers through the Automatic Stabilizers Until Germany Demands Austerity.

The eurozone's initial response was also through its automatic stabilizers, which helped bring it out of recession. The EU's automatic stabilizers are weaker than those in the U.S. but still substantial. At that juncture, however, Germany and its allies demanded the imposition of austerity and the rejection of fiscal stimulus. This threw the eurozone back into recession and Spain, Greece, and Italy (with roughly one-third of the eurozone's total population) into Great Depression levels of unemployment. It became normal throughout the EU's periphery for university graduates to emigrate. Germany also demanded that the nations of the periphery slash their wages and make it far easier to fire workers. Inequality is surging in nations that were once far more egalitarian. Germany's political and economic hegemony over the EU is now blatant.

The Faux Morality of Government Budgetary Surpluses

A sovereign nation with a sovereign currency (such as the U.S.) is not "just like a household." We know households best so we have been conditioned throughout our lives to think of a budget deficit as unquestionably bad and a budget surplus as unambiguously good. We moralize these two states of accounting - a surplus is virtuous and a deficit indicates a moral failure. Interestingly, we have very different rules in the corporate sphere, where one of the best ways to be fired as CFO would be to pay off all corporate debt. But sovereign states are neither households nor corporations and their "deficit" is simply another sector's "surplus." That does not mean deficits are irrelevant - context is critical. It does mean that during a recession the effort to run a governmental budget surplus will, unless the Nation is a very strong net exporter, reduce growth and slow the recovery or even - as it did in the eurozone (and in the case of Spain, Greece, and Italy) - throw the economy back into a gratuitous second recession (or Great Depression).

The EU is about to Double Down on Austerity.

Almost all eurozone governmental budgets are in deficit. That is as it should be, but size and context matter, and the eurozone deficits are far too small to spur rapid growth. Eurozone nations are still the beneficiaries of very modest stimulus via the automatic stabilizers. Germany, however, demanded that the infliction of much more severe austerity in the future. Given its domination of the EU, whatever Germany demands becomes EU rules. Over the next few years those rules will require the eurozone nations suffering from Great Depression levels of unemployment, the entire periphery, and core nations with weak growth to run increasingly large budgetary surpluses. That is a prescription for gratuitously forcing nations back into third recessions or depressions - and for long-term stagnation. Even the leading troika apologist for austerity, Olli Rehn, stated that under the troika's policies it would take Spain a decade to emerge from the "crisis" phase. 2024 is 16 years after the acute phase of the original crisis. Rehn gave no estimate of how long it would take Spain to fully recover under the troika's policies - and his estimate (implicitly) assumed there would be no further downturns for at least a decade. He also implicitly assumes an unbroken continuum of German austerity policies dominating the EU. I have written several columns explaining why austerity will cause extreme political changes in the EU. The NYT article I am about to discuss in more detail makes clear that Rehn's implicit assumptions are unlikely to prove correct.

The NYT's Inability to Write Coherently about the EU Crises.

Roughly one-third of the eurozone's population is living in nations with Great Depression levels of unemployment because Germany demanded the infliction of austerity in response to the Great Recession. This is significantly crazed. It tells us that German hegemony over the EU is a disaster that is sowing the seeds of a future political crisis. It also tells us how bad economics and economists are. Any doctor that bled a patient (yes, I know there are a few specialized treatments that use leeches) to make them well would lose his or her license. But economists who engage in similar malpractice and bring misery to scores of millions of people have a very different fate in Europe (and Chicago). They are promoted and made finance ministers, the head of the ECB, and even the Prime Minister of Italy.

But perhaps the NYT believes that Krugman and most economists are wrong and austerity is the best response to the Great Recession. That could explain why they repeat endlessly and without any critical thought Prime Minister Angela Merkel's mantra: "there is no alternative" (TINA) to austerity. The latest exemplar of this is their July 6, 2014 story: "France Puts Euro Zone Recovery at Risk, Economists Warn."

"The economy has been hovering too long near stagnation, economists warned at an economics conference here on Sunday, saying that unless the government in Paris pushed more strenuously to improve growth alongside Germany, its performance threatened to weigh on the prospects for a wider recovery in the euro zone."

OK, so how would Paris "improve growth?" The conference was supposed to create this agenda.

"[T]op European policy makers and economists addressed what has become the most urgent concern about Europe: that for all the steps taken to put crisis-stricken countries on a path toward renewed growth, the recovery is still unfolding much too slowly." It would be helpful for the reader to know the nature of "all the steps taken to put crisis-stricken countries on a path toward renewed growth." In prior columns I have explained why I believe that the troika's (the EU Commission, the ECB, and the IMF) "steps" (austerity and slashing wages) have been the greatest impediments to "renewed growth."

A Side Note about Why Germany can never be a Model of Recovery for the Eurozone.
A nation can run a budgetary surplus in response to a recession and still grow if it is a very large net exporter - as is Germany. Germany positioned itself to be a very large net exporter a decade ago by reducing workers' wages. Germany's response to the plight of the periphery is: we took the bitter medicine and things are generally OK for us - you should do the same. That response, however, is untenable. First, we cannot all be net-exporters. My exports are your imports and if we all try to net exporters (1) we cannot succeed and (2) the result is a destructive neo-mercantilism race to the bottom that will crush European wages. Second, Germany's success as a net exporter makes it much harder - not easier - for the periphery to emulate its strategy because it is pretty close to a zero sum competition. Third, Germany's greater productivity means that nations of the periphery that try to follow its net-export model would have to inflict far greater reductions in workers' pay to compete. This would set off a race to the bottom among nations of the periphery to cut wages. Inequality, which is already surging in the EU, would explode. I call this dynamic the "Road to Bangladesh" strategy. It explains why German corporations are the greatest proponents of austerity.

The NYT Misses the EU Politics that Consumed the Conference Attendees

return to the NYT's coverage of the conference that was supposed to address what policies the troika should adopt to prevent the eurozone's "lost decade" from becoming the "lost quarter-century." Recall that the context of the conference was the realization that several core nations, particularly France, are on the verge of being forced back into recession by austerity. France is a big problem because it is big (the EU's second largest economy and a large population) and because for decades it served as the fig leaf (barely) masking Germany's rule over the EU. As France's economy stagnates Merkel has moved ever more openly to rule the EU, which already poses political problems and may unravel the EU.

"'The weakness of France is visible,' Bertrand Badré, managing director and chief financial officer of the World Bank Group in Washington, said in an interview on the sidelines of the conference. 'It's not that France and Germany should dominate,' he added, 'but if we can't find a way together it might be an issue.'"

German dominance is far more than "an issue" in the periphery where that domination is often seen as throwing their nations into economic catastrophe for the benefit of German banks and corporations. The Germans and their closest Germanic allies also have an atrocious record of insulting the victims of austerity. If Germany throws the French under the bus and the Brits exit the EU the nakedness of German hegemony over the EU will be stark and it will gall more than the Gauls.

Even the IMF Knows that Austerity is Self-Destructive

IMF head Christine Lagarde explained that the IMF was cutting its growth forecasts for the EU. She explained that inadequate demand leads to inadequate production and investment - and that austerity made this worse. Rob Carter I will not agree with this ever. Ihe lack of demand in any country is these days caued by excessive automation for greater greed of Plutocrats seeking more profit at the expense of employment:-

A) lower employment, means less wages to people in country,

B) Lower domestic disposable income is the natural consequence that further reduces demand at home, or lowered production.