Europe declared war on Keynes, and Keynes is winning.
So begins Nicholas Kristof in a
New York Times column titled
In Athens, Austerity's Ugliness, which is well worth your time to read. Greece, which clearly had its share of problems - including a perhaps excessively generous public sector, is the poster child for the dangers of ignoring Keynes, whose approach towards recessionary pressures was to cut interest rates and increase government spending.
Kristoff writes that
Some 250,000 Greeks now receive free meals from churches or shelters, according to the Greek Orthodox Church.
This is in a country with population of around 10.8 million, or about 1/30th that of the US. Project out that rate of about 2.3% in a population of around 312 million and you get a figure in excess of 7.1 million, while the highest estimates of the current US population are between 2.5 and 3 million, less than half the rate seen in Greece.
Please keep reading.
Kristof writes that his hunch is the most recent efforts at a rescue package
will fail (except that it will buy time, perhaps its purpose) and that Greece eventually may leave the euro zone. In any case, the rescue packages seem more about saving French and German banks than saving Greece.
Certainly the Greek population does not think the economy of their country will be saved. That's why so many rioted against the cuts when proposed by the Government, why so many struck, and why many who can are now leaving the country.
One should remember, as Kristof rightly points out, that by Northern European standards the social welfare benefits in Greece were not excessive: it's governmentally provided social safety net pales in comparison to those of the Scandinavian nations. It certainly tolerated a high degree of corruption: Kristof provides an example of a $100,000 tax bill being addressed by paying 40,000 in taxes and 20,000 in bribes, thereby saving 40,000 to the taxpayer. if you extend the reasoning, that means the government was shorted of 60,000 in revenue not paid into its coffers.
“The state has ceased functioning,” editorialized an Athens newspaper, The Kathimerini.
That’s an exaggeration, but schools, hospitals and social services are devastated. Staff at some halfway houses for the mentally ill haven’t been paid for six months, and electricity has been cut off.
Kristoff tries to make an argument from Greek history for a Keynesian approach. He concludes his column as follows:
One of the earliest recorded economic crises in the Western world came in Athens in the 5th century B.C. Fortunately, Athens was then led by the great Pericles, an early Keynesian who did not respond by slashing budgets.
Instead, he ordered a public works initiative and built the Parthenon. I dropped by the Parthenon the other day, seeking inspiration, and a guide, Miranda-Maria Skiniti, was incisive about the lessons: “We need Pericles today.”
There’s ageless wisdom there for Greeks, Europeans — and Americans.
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I would agree that the model of stimulus spending through public works has value. I might quarrel with his portrayal of the actions of Pericles. When he succeed to power at the time when Athens lead the Delian league against Persia, he concluded a peace treaty with the Persians, but rather than dissolving the Delian league move to accrue more power to Athens. Yes, the Acropolis was built with public funds, something against which Thucydides apparently argued strenuously but unsuccessfully. But much of the public revenue of Athens at the time came from tribute imposed upon other members of the Delian league. Since modern-day Greece cannot impose of the rest of the members of the Euro Zone to fund its deficit spending, it is not clear that the early situation is parallel to what the Greeks face today.
The Keynesian approach was possible because nations controlled their own currency, and could create more money to pay for the deficit spending, and they could increase their debt. One problem for many nations in the Euro zone is the inability to simply print more money as a short-term solution to the immediate crisis. The French and Germans, who exercise the greatest control over the common currency, and who do not face the serious economic pressures of some other members of the Euro zone, are unwilling to go the route of a full-fledged Keynesian approach. Thus Greece, which needed to address some issues, is following a path that is destroying its economic future, and undermining its democracy.
Perhaps it might be correct to say that Greece needs a Pericles who will stand up for the idea of democracy, since he as much as anyone was responsible for the flowering of Greek democracy and culture: the mid Fifth Century before the common era is also the time of the great flowering of Greek culture. Instead it has technocrats, it has people who focus on economics while ignoring other aspects of maintaining a functioning democracy.
If nothing else, what we can learn from Greece is that a program of severe austerity in a time of recessionary pressures is not something that will benefit all of the people, and thereby will of necessity undermine democratic legitimacy.
Those who still foolishly argue for strict austerity here in the US either are oblivious to the social as well as economic consequences of such an approach for the vast majority of the people, or simply do not care.
If you have any doubt, look at what has happened to public sector employment, and to the services it has provided, and recognize that the cutting of the public sector has served as a serious drag on the economic recovery in our own nation.
Kristof began by writing Europe declared war on Keynes, and Keynes is winning. That is, the predictions Keynes offered about such an approach are being borne out.
Here at home, the Republicans and the Neoliberals have declared war on the New Deal and the Great Society, and America and most Americans are losing.
We can look at Greece and perhaps get a glimpse of the future that lays ahead of us if we continue on this foolish path of austerity in a time of economic need.