The Case for Austerity Blown Apart…Only a Fanatic Would Carry On This Bogus Policy

meme2

The evidence base for Austerity was dealt a hammer blow this week by the discovery that the definitive economic paper underpinning it was based on a single Excel spreadsheet with a faulty column.  The IMF has called for a rethink on Austerity, the UK’s credit rating has been downgraded, the economy has stalled and unemployment is rising. Only an Austerity fanatic would continue with such a clearly bogus policy.

Another Dodgy Dossier

 AF1

The 2010 ‘Growth in a Time of Debt’ paper was prepared by celebrated Harvard economists Carmen Reinhart and Ken Rogoff.  It stipulated that states with a debt to GDP ratio of 90% or above grow significantly slower than states with lower debt.  They claimed this demonstrated a correlation between debt and growth and that to grow our economies quickly, we needed prioritise debt reduction.  It became the evidence base by which political leaders across Europe and North America could argue a dramatic programme of public spending cuts.  ‘It was not ideological,’ they told us,’ it was evidence based’.

UK Chancellor George Osborne, speaking in 2010 shortly before he became Chancellor said:

“Perhaps the most significant contribution to our understanding of the origins of the crisis has been made by professor Ken Rogoff, former chief economist at the IMF, and his co-author, Carmen Reinhart.” The chancellor then quoted the finding from their paper: “The latest research suggests that once debt reaches more than about 90% of GDP, the risks of a large negative impact on long-term growth become highly significant.”

The Political Economy Institute of Massachusetts requested the calculations for the study from Reinhart and Rogoff after they found they were unable to reproduce the results themselves.

They were stunned to find the whole argument was based around a basic excel spreadsheet, given that such basic economic modelling has been responsible for the Collateralised Debt Obligations that caused the Financial Crisis.

They found not only glitches in the spreadsheet that created wrong totals, but that the spreadsheet omitted data from five of the 19 countries in the study and the wrong data for another.  This meant that while the paper claimed countries with a debt to GDP ratio on or above 90% would see their economy shrink by 0.1%, they would actually grow by 2.2%.  This is slower than a lower debt country, but not the doom laden forecast that triggered the extremities of the Austerity programmes.

The IMF Becomes a Critic of Austerity

 AF2

This week has also seen the International Monetary Fund (IMF) recommend Chancellor George Osborne rethink his Austerity based approach to recovery, based on poor growth figures.  In short, the IMF said that Austerity is not working. The fact that this call came from the head of the IMF is as bizarre as it is damning.

The IMF invented Austerity.  They created a mechanism called the Structural Adjustment Programme (SAP) which meant that loans were granted to developing nations on the condition the nation followed the rules of the SAP.  This was a means of the IMF effectively imposing neoliberal economic policies on the populations and sidestepping the democratic process to do so.

The SAPs are very elaborate instruments.  They enforced the selling off of national industries and resources, removed all capital controls on money flowing in and out of the country, dictated level of public spending which prioritised debt repayments and corporate welfare over infrastructure investment and human welfare; they even covered suppression of wages and unionisation rules for labour.

The results of the Structural Adjustment Programmes speak for themselves. They have allowed external corporations to make enormous profits by buying up state owned industries at a low price, whilst keeping living standards, wages, civil liberties and employment rights so low as to maintain a cheap domestic labour force.  The human cost has been felt most painfully in public health.  The stipulations to cut spending on health, sanitation, and the development of water systems created a public health catastrophe in these nations.  According to the World Health Organisation:

“In health, SAPs affect both the supply of health services (by insisting on cuts in health spending) and the demand for health services (by reducing household income, thus leaving people with less money for health). Studies have shown that SAPs policies have slowed down improvements in, or worsened, the health status of people in countries implementing them. The results reported include worse nutritional status of children, increased incidence of infectious diseases, and higher infant and maternal mortality rates.”

The Structural Adjustment Programmes are now being rolled out across Europe, as Austerity Programmes.  Central banks are lending to stabilise national economies which have been broken by the cost of bailing out other banks.  The Central Banks make these funds contingent upon the national government imposing an Austerity Programme.  This is SAP by another name.

So far we have seen democratic governments in Greece and Italy who refused to comply replaced with technocratic governments who will.  Most recently in Cyprus the government was coerced into agreeing a direct confiscation of the personal wealth of its citizens to pay off debts run up by Banks.

The Results of Austerity

 AF3

The countries which have adopted Austerity Programmes have seen their economies eviscerated.  Any rational person assessing the performance of a model whose academic basis just got blown open, would surely reflect on the results so far.

Greece

The economy of Greece has shrunk every year for five years and the Austerity Programme has turned a financial crisis into a humanitarian crisis.

11% of the population now live in ‘Extreme Material Deprivation’ without enough food, heating, electricity or a telephone

The Church of Greece distributes 250,000 food rations daily and there has been an explosion in food rations

Unemployment is now over 27% and continues to rise each month, while youth unemployment is now over 59%.

This level of poverty has enabled a resurgent fascism.  The Far Right Golden Dawn party now has 18 of the 300 seats in the Greek Parliament.  Immigrants are being routinely assaulted and killed in racially motivated attacks.  Just days ago, a group of 200 immigrant workers protesting six months of unpaid wages were fired upon by their bosses.  The assault left twenty eight with gunshot wounds and it was a miracle that no one lost their life.

Spain

The Spanish economy will shrink again this year and has been shrinking throughout the Austerity programme.

Unemployment has hit a record 27.1% with youth unemployment at 55%.

Average household income has dropped by more than 10% in the last five years as wages have been depressed.

A recent Oxfam report warned that by “By 2022, some 18 million Spaniards, or 38% of the population, could be in poverty.

UK

The UK Economy has been through a double dip recession since the bailout of 2008 and continues to undershoot growth forecasts by the OBR and the IMF.

Unemployment has risen to 7.9% with youth unemployment at 21.2%.

The Institute of Fiscal Studies (IFS) warns that the governments own figures state that 900,000 public sector jobs will be lost between 2010 and 2017. So far, more than 340,000 have gone.

Wages have fallen to their lowest in a decade.

According to the UK Essentials Index, inflation on the essential items that the poorest groups in the country buy has hit an eye watering 33%.

A string of assaults on the welfare state are estimated to push 600,000 children into poverty by the next general election in 2015.

Wider Europe

The Austerity programme has been an unmitigated disaster by all of its published metrics.  It has failed to create growth and it has failed to reduce national debt.  It has swapped the burden of consequence of the Financial Crisis from the Industry that caused it to ordinary people.  The Red Cross has announced that the Austerity induced poverty across Europe has required it to launch its largest food aid programme since the Second World War.  So when critics of Austerity suggest a class war might be afoot, it is worth reflecting on that point before dismissing their arguments out of hand.

Facts Don’t Bother Fanatics

 AF4

The key issue here is how the governments and individuals who have supported Austerity respond when the intellectual basis has been found bogus, the leading financial institutions argue against it and the results on the ground are so woeful.

In this case there is no sign of pause or reflection from the political leadership.  Far from it, they are ordering full steam ahead as the ship meets the iceberg.

Mark Carney, the new Governor of the Bank of England has declared Britain a ‘crisis country’ alongside the Eurozone and Japan, and argued against the IMFs plea for a U Turn on Austerity.

Chancellor George Osborne has insisted he will ‘stay the course’ on Austerity – apparently regardless of the fact that puts the majority of the UK population on course for poverty and suffering.

UK Prime Minister David Cameron seems positively gleeful at the advancement of his austerity agenda, declaring there is ‘no end in sight’ for the programme of public sector cuts.

The political leadership have rejected the fact the evidence for Austerity has been undermined, they have rejected the criticism of the architects of Austerity itself and they have rejected the reality of its devastating results on the ground.  These people are not rational, they are ideologues.

Without the intervention of the electorate, Austerity is here to stay.  Anyone crossing their fingers that the logic of this argument will do anything to deter these Austerity fanatics needs to get real and fast.  Austerity is a war on the welfare state and these bogus economic arguments are merely the sheep’s clothing adorning the wolf. If we don’t want to end up like Greece, Cyprus and Spain, then we should not follow our government over the same Austerity cliff that drove them into the dust.

11 thoughts on “The Case for Austerity Blown Apart…Only a Fanatic Would Carry On This Bogus Policy

  1. Pingback: The Case for Austerity Blown Apart...Only a Fan...

  2. Pingback: AnimalFarm.org » RT @OurOlympics: Are We Being Led By Fanatics? http://t.co/oY68WUNw51 #occupy #ows #r4today #anon #newsnight #bbcdp #wowpetition #politics …

  3. Pingback: AnimalFarm.org » RT @Scriptonite: Are We Being Led By Fanatics? http://t.co/oMNQNjdUqe #occupy #ows #r4today #anon #newsnight #bbcdp #wowpetition #politics …

  4. Great post and highly relevant content. In my view there is a political purpose behind the crisis and the austerity measures that only deepen the crisis. (An Econ 101 level fact)

    To add another perspective to the topic, I would like to recommend the below post – and those listed at the end of it:

    “The demo version of kratos: the sad moment when the totalitarian United States of Europe (USE) was born”
    http://familyhurts.wordpress.com/2013/04/19/the-demo-version-of-kratos-the-sad-moment-when-the-totalitarian-united-states-of-europe-use-was-born/

    I recommend above also for those who are/were uninformed of the fact that the whole of Europe has been hijacked by the EU, it has been the EU that inflicted the crisis in its member states, and/or for those who need evidence of the anti-democratic nature of the EU.

    The video posted with the article is the record of the sad moment when the totalitarian United States of Europe (USE) was born. (At the end of 2007) The new empire was established by the EU political elite without informing the world about this historical event and without the knowledge and consent of the affected 500 million citizens.

    The mass-scale deception is currently continued by a recent trick of the EU Commission announcing an overt federalisation plan
    – (see Telegraph article: Plans for EU referendum drawn up for Britain
    http://www.telegraph.co.uk/news/newstopics/eureferendum/9539494/Plans-for-EU-referendum-drawn-up-for-Britain.html) –
    mimicking a situation as if the covert federalisation wasn’t in place already.

    What this means: while Europe, UK included, is being governed by the EU-superstate, the British may get busy with getting ready for a referendum, instead of getting busy with finding a solution for getting rid of the EU superstate that is already governing them. Ingenious.

    The funniest thing is this: the lesson we could learn from the Irish referendum of 2008 is that the will of people does not influence the EU leadership and a referendum will NOT stop them from executing the silent takeover of Europe. Since the EU blatantly ignored the blatant fact that the Irish blatantly refused joining the EU federalisation, it is easily predictable that a negative outcome of the British referendum, which is planned for a laughably far date (2017), will not make any difference either. By then the fathers of the USE will have already gobbled up the whole of Europe, including Britain, the once great.

    Read whole post at:
    http://familyhurts.wordpress.com/2013/04/19/the-demo-version-of-kratos-the-sad-moment-when-the-totalitarian-united-states-of-europe-use-was-born/

    • To add to and clarify my former comment:

      I couldn’t agree more with the way you put it: Austerity is a war on the welfare state,
      and it is here to stay.

      “Without the intervention of the electorate, Austerity is here to stay. Anyone crossing their fingers that the logic of this argument will do anything to deter these Austerity fanatics needs to get real and fast. Austerity is a war on the welfare state and these bogus economic arguments are merely the sheep’s clothing adorning the wolf. If we don’t want to end up like Greece, Cyprus and Spain, then we should not follow our government over the same Austerity cliff that drove them into the dust.”

      It is my view as well that there is a political purpose behind the ongoing crisis and behind the stubborn policy pushing the austerity measures that only deepen the crisis. As your post also suggests, this is basic-level knowledge, yet the political elite of Europe – and of the whole Western world- consistently ignores it.

      Since I have read the Lisbon Treaty – the effective EU Constitution since 2008- I am aware that the austerity measures have been part of the overall reform plans within the whole of EU. This is like a ball-game made possible by the rules of the EU’s divide at impera strategy: passing the ‘ball’ of blame all around Europe, from the East to West, then back to the East, from the big member states to the small ones, then the way around, then to the global crisis, meanwhile continuously on the immigrants, as the “explanation” of the crisis.

      On a side note: no one seems to notice that immigration can’t be blamed for any of the maladies within the EU. The constant change of places is what COMES naturally with the EU integration (by now federalisation). Migration is intensifying because the labour market is extended into the whole of EU, meanwhile the recession, due to the increasing unemployment, businesses failing, etc, pushes people into a constant seeking of new opportunities always somewhere else.

      It is therefore evident by now that none of the above, but the international political-financial oligarchy is to be blamed for the continuing crisis, and if we look deeper we may find that this is true for the whole of the Western world. The ultimate reason behind this tendency is however much more alarming than we might think at first glance. Due to the consistency of the global political elite to get it all wrong, everywhere and for so many years, the only logical explanation is that they don’t even try to rescue Europe from the crisis. All they are interested in is to develop this new USE empire, to engineer it into one country, for the free exploitation of 500 million by a few. The plan to introduce an EU tax, while Europe is stricken by the Austerity measures, signifies such plan.

  5. The first aim of austerity was to address the deficit (in order to tackle the national debt) which has irrefutably decreased under the coalition government.

    “A Conservative government will act now on debt to get the economy moving. We will deal with the deficit more quickly than Labour, so that mortgage rates stay lower for longer with the Conservatives.” – Conservative Manifesto 2010.

    Spending more than is raised is a sure fire way to crush an economy which even Ed Balls agreed with in the Labour manifesto of 2010.

    Despite the flaws found in the RR paper their research still holds true that the higher a country’s debt compared to GDP the lower the growth, therefore the process of deficit reduction to get to a point where you can address the accrued debt again is logical. This is before we analyse what the true Debt/GDP figure for the UK is anyway given the amount of Enron like accountancy that’s been used to hide pension and PFI liabilities from the national debt statistics.

    The above advocates (though not by offering any concrete alternative) leaving things as they are increasing both national debt and the deficit in the hope that the government (us!) can keep spending money it doesn’t have in the hope that things will get going again before the currency crashes or the UK has to start paying anything over 5% on long bonds. This is an impossible scenario post the depression the UK has entered.

    Nonetheless, there are better ways to reduce spending e.g. reduction of the foreign aid budget, european union contributions cuts, tax evasion action, tax system reform and no free funerals for multi millionaires who hold their homes in tax shelter companies rather than letting the majority of the effects land on the most vulnerable.This is where the Conservatives and Liberals are wholly culpable.

    Labour. Conservative or Liberal Democrat it doesn’t matter they are all owned by the same people and therefore the responses to this depression will be those that serve their masters the best.

    Capitalism is the problem and Fabianism is not the solution, nothing but wholesale change of the system will only result in more of the same.

  6. Pingback: AnimalFarm.org » The Case for Austerity Blown Apart…Only a Fanatic Would Carry On This Bogus Policy http://t.co/oMNQNjdUqe #newsnight #occupy #ows #peri #imf

  7. Pingback: AnimalFarm.org » The Case for Austerity Blown Apart…Only a Fanatic Would Carry On This Bogus Policy http://t.co/MoUipZL2dh #newsnight #occupy #ows #peri #imf

  8. Austerity isn’t the only lie told by Osborn or his Comrades look at the Lies told by IDS DWP McVey Cameron Freud along with many others in the political sphere, time that people olke up to the real agenda the Tories and as there Coalition Partners in crime or as I have heard them described Collaborators, the whole sad thing is that they as many others believe are untouchable , the majority of the public unfortunately believe similarly after Thatcherism damaged the lives of millions of people they are now apathetic and don’t believe that Politicians can be held to account for there misdeeds, there is an alternative that could see the Politicians held responsible for there misconduct and deeds, please read Carefully Consider signing WOWPetition which once it reaches 100K can effect Change for the better for everyone, you Can Find it hear http://epetitions.direct.gov.uk/petitions/43154 If you would like to Join the Campaign you can find us on facebook And Twitter.

  9. Pingback: The Case for Austerity Blown Apart…Only a Fanatic Would Carry On This Bogus Policy | Lorem Ipsum

Leave a Reply