08 May 2012

Bill Black: Austerity During a Serious Recession Is Economically Insane - A Warning From History

"The German’s and the ECB are not demanding any sacrifices from European elites. They explicitly target the working class and government workers’ wages and oppose any increased taxation of the wealthy. The Berlin Consensus is a road map to ever greater inequality."

Bill Black

"Thank God the US opted for bailouts and not handouts...People in economic distress should suck it up and cope."

Charlie Munger

I will not mince words with this. I see a world on the brink of war, for all the same old reasons. It will take many forms political and financial, at first civil and then regional. If this does not resolve the situation then the conflict will expand and continue by other means.

The elites' price for peace will be a world without borders, or at most three or four spheres of influence, under their direct control and planning.

Appeasement will only serve to inflame their lust for power and dreams of domination.  They see themselves as moving from victory to victory. The tide of reform is being turned aside by special interests, compromise is viewed as ideological impurity, and legitimate protests are met by not by recognition and justice but by indifference and repression. This will not stand.

"The technetronic era involves the gradual appearance of a more controlled society. Such a society would be dominated by an elite, unrestrained by traditional values. Soon it will be possible to assert almost continuous surveillance over every citizen and maintain up-to-date complete files containing even the most personal information about the citizen. These files will be subject to instantaneous retrieval by the authorities...

In the technotronic society the trend would seem to be towards the aggregation of the individual support of millions of uncoordinated citizens, easily within the reach of magnetic and attractive personalities effectively exploiting the latest communications techniques to manipulate emotions and control reason."

Zbigniew Brzezinski, Between Two Ages: America's Role in the Technotronic Era, 1970

In fairness to Brzezinski, the above quotes in context seem more a forecast, and a threat to be feared rather than a prescription to be followed. 

But others do not fear it, and the threats are real, and with much precedent in history.  They have been viewed favorably by any number of groups where the elite get together to discuss their plans and goals.  Their contempt and distrust of the individual, inferior beings unlike themselves at least in their own minds, is perennial.   The infamous Project for the New American Century that was a center for neo-conservative thinking is just one such example.

Stimulus without significant economic reform leads only to bubbles and more of the same conditions that led to the financial crisis in the first place. The answer is growth, but growth that is real and more broadly based.

The greatest impediment to this solution is greed and financial corruption of the financial predator class that has benefited the most from the distortions that they promoted in the last three decades.

Austerity *might* have a chance if it was accompanied by significant financial reform that did not rely on highly regressive wage reductions to bridge the economic gaps. But it is not likely.   

Without reform, austerity is sheer economic tyranny, a form of neo-colonialism that has been promoted until recently by the developed nations on the Third World, which itself is beginning to rebel against the viceroys and puppets of the powerful.   But now it has come home to feed on its own, and the faithful middle class stands aghast, in quiet disbelief.

The propagandists like to frame the question as 'who will pay,' rather than 'how do we stop the stealing, corruption and waste, and resume healthy growth in the real economy?  So as they often do, they entice the professional and middle class to back their plans from fear, until it is too late.
"...propaganda is entirely founded on the exploitation of the weakness of the human heart. It does not address itself to the strong or the heroic. It tells the rich they are going to lose their money. It tells the worker this is a rich man's war. It tells the intellectual and the artist that all he cherished is being destroyed by war. It tells the lover of good things that soon he would have none of them. It says to the Christian believer: 'How can you accept this massacre?' It tells the adventurer - 'a man like you should profit by the misfortunes of your country.'"

Edouard Daladier, 29 January 1940, radio address to the French people

Will the people never learn? Will their leaders set Europe on fire again before they come to their senses and have to be put down?  And how soon afterwards will the UK and the US have their own moments of crisis?

Although we have been fortunately insulated from this in the developed nations in this generation, it is the oldest theme of history, and one to which we seem determined to return.  And despite the delusions of many, there are never any real winners, only heartache and destruction.
"...Overall, European nations showed significant budgetary restraints in the decade leading up to the Great Recession. Most of the periphery did so – Greece is a special case. The Cato Institute, for example, praised Iceland and Ireland as models of restraint. Spain also received praise. The claim that the periphery was “profligate” through large budgetary deficits in the run up to the crisis reverses the facts.

Austerity during a serious recession is economically insane. It is a pro-cyclical policy that makes the recession more severe. A more severe recession is a mass destroyer of wealth and quality of life. It is pure waste.

It is the primary cause of dramatic increases in public deficits and debt. Unemployment reduces tax payments and increases demands for public spending. One cannot decide to end a budgetary deficit during a recession by adopting austerity. Austerity (some combination of cutting government spending and increasing taxes) reduces private and public sector demand.

This means that imposing austerity is likely to deepen the recession and can make the national deficit and debt larger. It is analogous to the medical insanity of bleeding patients to cure them of disease – and then bleeding them more because the prior bleeding make them sicker.

Europeans of the periphery are having austerity imposed on them by German demands – and they are subjected to repeated insults from German and Dutch leaders for failing to balance their budgets because the austerity imposed by Germany deepened their recession and slashed their tax revenues.

Germany’s demands for austerity have thrown the euro zone back into recession – but it has forced the periphery into Great Depression levels of unemployment. German-imposed austerity, the Berlin Consensus, is even more draconian than the Washington Consensus in Latin America. Germany and the ECB are open that they are not simply demanding austerity and massive privatization – they are also demanding dramatic reductions in working class wages throughout the EU.

The German’s and the ECB are not demanding any sacrifices from European elites. They explicitly target the working class and government workers’ wages and oppose any increased taxation of the wealthy. The Berlin Consensus is a road map to ever greater inequality..."

Read the rest here.

The Berlin Consensus is a road map to civil unrest and war.  It is a war which the powerful few think that they can win, and in their arrogant pride they may be willing to attempt it --- again.  The same industrial and financial interest intend to try and tame the madness once again to serve their self-serving ends, no matter which way in which they try to rationalize it.

But they forget that the madness serves none, only itself.

May God have mercy on us.