FacebookTwitterGoogle+RedditEmail

Greek Austerity

by JEFFREY SOMMERS and YANIS VAROUFAKIS

Britain’s iconic Tory Prime Minister Winston Churchill once intoned, “The United States always does the right thing [long pause] ….after exhausting all other options.” It seems this past truth still resonates today.

The US and Europe passed through the greatest economic storm since 1929 and have not yet fully exited from the turbulence. Both the US and Europe addressed the crisis with belt-tightening austerity, with the US having tightened its belt a bit, and Europe a lot more. Several years later, we have the results: the US economy, while not in the best of health, is better off than much of Europe’s.

If all government budgets are gutted, the result is akin to one’s view at a concert if everybody stands to improve their view. When everyone stands nobody sees better. In short, what works for one person can fail if applied to all. Nowhere has this been more evident than in Europe. European governments responded to the crisis by tightening their belts all at once. The result, ironically, was increasing government debts and sluggish economic growth.

In the United States, many governors practiced European-style draconian budget cuts. But, because the US has a true federal government (unlike the EU), its budget cutting states have continued receiving federal payments in the form of Social Security, Medicare, Student Loans, etc. Ironically, the very New Deal legacy that austerians work to euthanize in the US, is the chief thing that prevented the US economy from completely crashing. The EU does not have these federal transfers to its budget cutting member states, and thus, have faired worse.

Politicians in this country frequently warn their opponents’ policies threaten the United States with a fate worse than Greece’s. Americans have a curious view of democracy’s birthplace. They seem to think Greeks have been overtaxed. In fact, the opposite is true. Unlike the United States where only some of the rich evade taxes (as Warren Buffet has mentioned), Greece is more democratic in that nearly everyone evades them. Tax evasion contributed to Greece’s original fiscal mess. Budget cutting then deepened it. Greece tried remedying this by raising taxes at the peak of the crisis, but a crisis is no time to raise taxes. Greece also radically cut budgets and
globalmino tried another policy supported by some in this country: cutting wages. The result? So far, following the budget and wage cuts national income fell by a massive 25 percent.

While one worker can find employment more easily if she is willing to work for less, when many workers are paid less, there is simply not enough demand for the goods and services they produce to keep them employed. In Greece, job creation stalled under austerity. The clear lesson from Greece is that private and public sector employment are linked. Cutting one hurts the other.

Fortunately, America is not in danger of becoming Greece. For one, a few, but growing number of, conservatives (such as Silicon Valley millionaire, former publisher of the American Conservative, and past GOP California gubernatorial primary candidate Roy Unz) are recognizing that increasing the minimum wage has two merits. First, it can help cut public spending as it reduces the number of Americans on benefits. Second, that low-wage workers spend most of their disposable income on local goods and services, thus generating business and profits. By contrast, cutting taxes for the wealthy in the United States typically results in them taking another vacation with their money to my (Varoufakis) country, Greece: good for us, bad for you.

Reflecting back to Churchill’s observation on America exhausting its austerity options, the US could do the “right thing[s].” Americans invest more on research & development (this being done primarily at US universities) than Europe and they will profit if they invest even more. Despite attempts to kill them, the US has preserved “entitlement” spending as a cushion against economic crises. It also seems there is an emerging recognition that higher wages are in fact good for business and for cutting government deficits. The only thing halting this potential prosperity are the austerians.

Thus, the message from Greece on austerity is the phrase I have seen on many American adventure television programs: “don’t try this at home.”

Jeffrey Sommers is Associate Professor of Political Economy & Public Policy in, and Senior Fellow at the Institute of World Affairs at the University of Wisconsin-Milwaukee. He is also Visiting Faculty at the Stockholm School of Economics in Riga. He is co-editor & contributing author to The Contradictions of Austerity: the Socio-Economic Costs of the Neoliberal Baltic Model.

Yanis Varoufakis is Visiting Professor at the Lyndon B. Johnson School of Public Affairs of the University of Texas at Austin.  He is also Professor of Economic Theory at the University of Athens.  He is the author of the Global Minotaur and of A Modest Proposal for Resolving the Euro Crisis with James Galbraith and Stuart Holland.

 

 

 

 

 

CounterPunch Magazine

minimag-edit

August 25, 2016
Mike Whitney
The Broken Chessboard: Brzezinski Gives up on Empire
Paul Cox – Stan Cox
The Louisiana Catastrophe Proves the Need for Universal, Single-Payer Disaster Insurance
John W. Whitehead
Another Brick in the Wall: Children of the American Police State
Lewis Evans
Genocide in Plain Sight: Shooting Bushmen From Helicopters in Botswana
Daniel Kovalik
Colombia: Peace in the Shadow of the Death Squads
Sam Husseini
How the Washington Post Sells the Politics of Fear
Ramzy Baroud
Punishing the Messenger: Israel’s War on NGOs Takes a Worrying Turn
Norman Pollack
Troglodyte Vs. Goebbelean Fascism: The 2016 Presidential Race
Simon Wood
Where are the Child Victims of the West?
Roseangela Hartford
The Hidden Homeless Population
Mark Weisbrot
Obama’s Campaign for TPP Could Drag Down the Democrats
Rick Sterling
Clintonites Prepare for War on Syria
Yves Engler
The Anti-Semitism Smear Against Canadian Greens
August 24, 2016
John Pilger
Provoking Nuclear War by Media
Jonathan Cook
The Birth of Agro-Resistance in Palestine
Eric Draitser
Ajamu Baraka, “Uncle Tom,” and the Pathology of White Liberal Racism
Jack Rasmus
Greek Debt and the New Financial Imperialism
Robert Fisk
The Sultan’s Hit List Grows, as Turkey Prepares to Enter Syria
Abubakar N. Kasim
What Did the Olympics Really Do for Humanity?
Renee Parsons
Obamacare Supporters Oppose ColoradoCare
Alycee Lane
The Trump Campaign: a White Revolt Against ‘Neoliberal Multiculturalism’
Edward Hunt
Maintaining U.S. Dominance in the Pacific
George Wuerthner
The Big Fish Kill on the Yellowstone
Jesse Jackson
Democrats Shouldn’t Get a Blank Check From Black Voters
Kent Paterson
Saving Southern New Mexico from the Next Big Flood
Arnold August
RIP Jean-Guy Allard: A Model for Progressive Journalists Working in the Capitalist System
August 23, 2016
Diana Johnstone
Hillary and the Glass Ceilings Illusion
Bill Quigley
Race and Class Gap Widening: Katrina Pain Index 2016 by the Numbers
Ted Rall
Trump vs. Clinton: It’s All About the Debates
Eoin Higgins
Will Progressive Democrats Ever Support a Third Party Candidate?
Kenneth J. Saltman
Wall Street’s Latest Public Sector Rip-Off: Five Myths About Pay for Success
Binoy Kampmark
Labouring Hours: Sweden’s Six-Hour Working Day
John Feffer
The Globalization of Trump
Gwendolyn Mink – Felicia Kornbluh
Time to End “Welfare as We Know It”
Medea Benjamin
Congress Must Take Action to Block Weapon Sales to Saudi Arabia
Halyna Mokrushyna
Political Writer, Daughter of Ukrainian Dissident, Detained and Charged in Ukraine
Manuel E. Yepe
Tourism and Religion Go Hand-in-Hand in the Caribbean
ED ADELMAN
Belted by Trump
Thomas Knapp
War: The Islamic State and Western Politicians Against the Rest of Us
Nauman Sadiq
Shifting Alliances: Turkey, Russia and the Kurds
Rivera Sun
Active Peace: Restoring Relationships While Making Change
August 22, 2016
Eric Draitser
Hillary Clinton: The Anti-Woman ‘Feminist’
Robert Hunziker
Arctic Death Rattle
Norman Solomon
Clinton’s Transition Team: a Corporate Presidency Foretold
Ralph Nader
Hillary’s Hubris: Only Tell the Rich for $5000 a Minute!
FacebookTwitterGoogle+RedditEmail