Austerity: 2011's Darling Becomes 2012's Pariah
Posted: 05/29/2012 4:58 pm
There's a new scarlet letter in town. Actually, it's the same letter -- "A" -- but it stands for a different word that's increasingly regarded as shameful: Austerity. The darling idea of 2010 and 2011 has become the pariah concept of 2012. One of the defining features of conventional wisdom is the way it perpetuates itself. Once a certain narrative or idea takes hold in the political and media establishments, it becomes almost impossible to shake. So when the conventional wisdom does change, it's worth noting.
And the evidence of profound change is all around. In May, anti-austerity sentiment helped François Hollande topple French president Nicolas Sarkozy, one of the architects of the austerity measures that have caused waves of protest across Europe, especially in Greece.
The Austerity Experiment
ROBERT KUTTNER MAY 31, 2012
Was cutting back the wrong cure? Or did Greece fail to follow the recipe?
BRUSSELS—Depending on whose narrative you believe, the deepening economic crisis in Greece proves (a) that the dysfunctional and dissolute Greeks just couldn’t get their act together and keep the reform commitments that they made in exchange for debt relief from the European authorities; or (b) it only proves that austerity breeds more austerity.
Cut public spending and wages, and raise taxes in a recession, and you just dig yourself a deeper hole. Since only about 20 percent of the Greek economy is exports and less than 40 percent of export costs are wages, slashing wages just doesn’t produce much of a bounce, especially when the rest of Europe’s economy is contracting too.
Greece is a lousy test of the austerity-as-cure hypothesis, because left, right, and center agree that Greece has an encrusted system. When I recently interviewed former Prime Minister George Papandreou, he referred to Greece as a “clientist” state—meaning government by crony constituency. When the right governs, its clients are big business; when the left governs, the clients are civil servants and trade unions. In a depressed economy, constituents cling to what they have.