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The failure of economic austerity

Written By: - Date published: 8:54 am, February 11th, 2013 - 18 comments
Categories: capitalism, class war, International, national - Tags: , , ,

I know, I know, I’ve written about the failure of economic austerity before, like a broken record. But the evidence just keeps getting clearer and clearer. Paul Krugmann makes the case in his recent “Looking for Mister Goodpain“:

Three years ago, a terrible thing happened to economic policy, both here and in Europe. Although the worst of the financial crisis was over, economies on both sides of the Atlantic remained deeply depressed, with very high unemployment. Yet the Western world’s policy elite somehow decided en masse that unemployment was no longer a crucial concern, and that reducing budget deficits should be the overriding priority.

In recent columns, I’ve argued that worries about the deficit are, in fact, greatly exaggerated — and have documented the increasingly desperate efforts of the deficit scolds to keep fear alive. Today, however, I’d like to talk about a different but related kind of desperation: the frantic effort to find some example, somewhere, of austerity policies that succeeded. For the advocates of fiscal austerity — the austerians — made promises as well as threats: austerity, they claimed, would both avert crisis and lead to prosperity.

And let nobody accuse the austerians of lacking a sense of romance; in fact, they’ve spent years looking for Mr. Goodpain.

Krugman then traces the history of failed austerity programmes in Ireland, Britain and (of all places) Latvia. He concludes:

So what do we learn from the rather pathetic search for austerity success stories? We learn that the doctrine that has dominated elite economic discourse for the past three years is wrong on all fronts. Not only have we been ruled by fear of nonexistent threats, we’ve been promised rewards that haven’t arrived and never will. It’s time to put the deficit obsession aside and get back to dealing with the real problem — namely, unacceptably high unemployment.

A follow-up piece by Gaius Publius has a title that really says it all – “No Austerity Has Helped Any Economy“. But Publius makes the point that there is actually a success story here – if you happen to be in the 1%:

Paul Krugman’s recent column looks at the romance between the “austerians” — the promoters of austerity for economically troubled nations — and the need to inflict pain to get economic gain. His bottom line — no country that has tried austerity has seen a major economic benefit. My bottom line — add “to its people” to the end of Krugman’s bottom line and you’ve got it exactly. There is an obvious economic benefit, but only for a few.

Publius calls the tiny minority who profit the “Baronial class”:

But the baronial class is also the predator class and they know precisely where the benefit (for them) always lies. This is the predator class in operation:


The Predator Class in action. If you added the Top .001% to this chart, it would have to be taller than you are.

If you added the Top .1%, the Top .01% and the Top .001% to that chart, you’d need a chart as tall as your room. What the chart calls the “Highest Fifth” includes what I call the “retainers” — administrators, enablers (that’s you, CNN producers) and professionals needed to keep the system working. Everyone else is workers, and look what their hard work got them. …

This is what James Galbraith calls “the predatory state” — and he means that economically. The predatory state is a state that enables and is controlled by economic predators, extremely wealthy vampires who feed on their fellow citizens.

And, sure enough, in NZ the Nats’ austerity cut cut cutting has left the economy stagnant, inequality on the rise, and the super rich getting richer. Welcome to the brighter future.


18 comments on “The failure of economic austerity”

  1. pollywog 1

    Social darwinism in action.

    Nature selects for the greedy?

    • geoff 1.1

      It’s basically tragedy of the commons where we, the serfs, are the shared resource. No doubt this is a good argument for the return of slavery.

  2. vto 2

    Does John Key have anything honest and full to say about this?

  3. RJLC 3

    No Austerity Has Helped Any Economy

    Arrgh, the grammar…it hurts.

    • just saying 3.1

      Austerity hurts a lot more.

      Which is the point I want to make. Austerity is already hurting people in NZ, the poorest, the sickest, those who are already struggling to get by, the newly unemployed, many are hurting from austerity right now.

      Any party that doesn’t commit to reversing the current austerity measures, raising taxes, and ameliorating the damage to our people and public (especially health) services is morally bankrupt, in mu opinion.

      You’ve said yourself austerity does not work. It has taken resources from the hardest-up and deposited them into the laps of the parasitic rich. I expect a commitment to some serious and immediate measures to repatriate those ill-gotten gains to their rightful communities. Well, from an honest, just, moral party I would…

  4. No real surprises here, but it sure scares a person.

  5. RedLogix 5

    This so called ‘austerity’ is nothing more than the triumph of billionaires:

    Setting aside the question of the validity of Keynesian arguments, they miss key purposes of austerity policies. Those policies do not primarily seek to overcome crisis or resume economic growth. Rather, as argued above, they aim chiefly to (1) shift the burden of paying for crisis and bailouts onto the total population, (2) reduce the economic footprint of the government, and (3) reduce creditors’ concerns about rising US debt levels. If austerity policies achieve these objectives, their failure to end the crisis quickly is a price that corporations and the rich are more than happy to pay (or rather, have others pay).


    On the alternative side of the ledger:


    Clearly Norway has had a different agenda with a different outcome.

  6. Draco T Bastard 6

    My bottom line — add “to its people” to the end of Krugman’s bottom line and you’ve got it exactly. There is an obvious economic benefit, but only for a few.

    Oh, good, another person to point out the willful ignorance of Krugman. Austerity, just like capitalism itself, benefits a few people – it’s the same few people in both cases and they’re the ones calling for austerity. Of course, it’s not them that’s having to be austere – they’re living it up at everyone else’s expense.

  7. Gee the graph says it all.
    Why do people keep voting this approach in 😥

  8. Lloyd 8

    Surely if the economy is expanding the wealthy are going to become better off eventually rather than being at the top of a receding pile?
    Therefore isn’t a financial policy that helps expand the economy the best long-term policy for the rich?
    Isn’t it obvious that reorganising the economy to provide more income to the poorest members of our society will help expand our economy?
    Since we don’t want to borrow money from foreign banks to get that extra money to the poorest members of our society, isn’t the easiest ( or is it the only) way of finding that money by taxing the rich more?
    Why aren’t the richest members of our society jumping up and down demanding higher taxes for those with the highest incomes?

    • Afewknowthetruth 8.1

      You cannot have an expanding economy when you have a shrinking energy supply, as we have, and as most of the ‘developed’ world has.

      And as time goes on the ‘cake’ will get smaller and smaller, the best estimate is half the present size by 2030…… (that’s if it hasn’t all imploded long before).

      It is the ‘job’ of John Key top ensure that the elites continue to get far more than their fair share.

      If a Labour government were ever to be formed, its ‘job’ would be to ensure that the elites continue to get more than their fair share. That’s politics.

    • Draco T Bastard 8.2

      Therefore isn’t a financial policy that helps expand the economy the best long-term policy for the rich?

      Nope. Even if the economy was infinitely expanding, which it isn’t and can’t, the over accumulation at the top will eventually cause the economy to collapse – exactly as we’re seeing now with the GFC.

  9. Mike 9

    Joseph E Stiglitz explains in very good detail why austerity doesn’t work in his book “The Price of Inequality” which is an excellent read, as are most of his articles. He also devotes time to the subject of rent seeking (corporate welfare primarily) which is very interesting. Link below.


  10. kiwi_prometheus 10

    I don’t think it is a conspiracy, more like a religious mentality or group think that you get when a hegemonic ideology has run its course. The priests keep delivering the same failed instructions really believing this time it will work.

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