Deficit, Shmeficit: Get People Back to Work
By Shlomo Maital
Tomorrow night my wife and I leave for a conference in Portugal. Lately, social protests in that country have recurred, the finance and foreign ministers quit, and Prime Minister Coelho faced a disintegrating government. He managed to avert it, narrowly. The sign in the photograph tells it all. Austerity kills dignity. It is also killing Europe.
Today’s Global New York Times reports that “fewer than 10 per cent of people surveyed in the European countries hardest hit by the region’s debt crisis say that their leaders are doing a good job at fighting corruption”, according to Transparency International. “The results reflect a crisis of faith in government”, the report continues. Half of the 114,000 people surveyed viewed political parties as the most corrupt institutions; half thought their governments are run by “special interest groups”.
According to the Portuguese member of the Transparency Intenational board, “the near unraveling of the Coelho government is an example of how focusing solely on the fiscal aspect of Portugal’s problems led to public frustration”.
According to the TI report, “19 of 25 European countries do not regulate lobbying at all.” Big money buys big lobbies, which protect the moneyed interests. And the people lose faith.
The macroeconomics of austerity is truly simple. People, without jobs or hope, stop spending. Businesses, as a consequence, also stop investing. Exports are down, as nations try to protect their home markets to export unemployment and their imports decline. Result: The only source of growing demand is government spending. But under austerity, that too disappears. It’s like all the air is let out of the GDP balloon, because there is no source of strong demand.
Deficit, Shmeficit. As Keynes said in 1936, in a Depression, governments must supply the demand. When they do, confidence resumes, unemployment falls, and the economy picks up. Governments can THEN tackle the deficit problem, which by the way cures itself as growth spurs tax revenues. It’s so simple. WHY don’t the rich European nations (i.e. Germany) get it?
Deficits can be fixed. But destruction of people’s faith in their leaders is much much harder to repair. And without such faith, the low-key Depression, as Paul Krugman calls it, will go on, in Europe and in America. And the people will continue to suffer and protest.
* Melissa Eddy, “Weary Europeans Lose Faith in Government,” Global New York Times, July 10/2013, p. 13.