Two articles that should be read by anyone interested in the global financial crisis have just been published. They address Spain. Spain tends to get far less coverage in the U.S. than Ireland and Greece, but it is a far larger country and economy. Its real estate bubble, relative to GDP, was the second worst among economically developed nations. Spain is so large and its unemployment is so severe that “Almost a quarter of all the unemployed in the 28-country European Union live in Spain….” Spain’s housing bubble was funded by an out of control banking sector and the bad loans are causing increasing damage to the banks. “[B]anks’ assets continue to deteriorate with an increase in the number of loans not being paid back.”
At yearend 2013, the Spanish government and the EU were desperately trying to spin Spain as a success story attributable to austerity and labor “reform.” Citing a nation with 26% unemployment as one’s great success story, a few weeks before Spain had to admit that the unemployment rate had increased, is sad. I asked a former student who is a financial reporter what the EU considers a failure, if Spain is their great success. The reporter answered: “Cyprus.”
The two articles I’m recommending need to be read together. Start with Stephen Burgen’s January 23, 2014 article entitled “Spain’s unemployment rise tempers green shoots of recovery.”
“[Spain’s] unemployment rate has risen above 26%, according to official figures.
Data published on Thursday by Spain’s statistics office show a further 198,900 jobs were lost in 2013. The total number of unemployed is now 5.9 million.”
These overall numbers get uglier when one examines the detail. Two troubling developments have held down unemployment to “only” 26%. Large scale migration has kept the unemployment rate much lower than it would otherwise be, but at great cost to the nation’s future. The Spanish government has encouraged firms to shift to part-time jobs that lack normal job protections. Economists have urged Spain to take actions like this to reduce wages.
“Part-time jobs increased by 140,400 and full-time declined by 339,300. The main effect of the government’s much touted labour reforms has been an increase in those in part-time work, which now accounts for 16.34% of the total.”
The Spanish government has responded to the crisis with austerity that simultaneously maximizes the pro-cyclical fiscal drag that worsens Spain’s Great Depression and revels in its callousness to the worker.
“[T]he prime minister said the cabinet had decided to freeze the minimum wage for next year at 645.30 [euros] ($890) a month while lifting pensions, which are no longer linked to inflation, by just 0.25 percent.”
Long-term unemployment has surged and is concentrated among households and regions.
“[W]ell over half of Spain’s jobless are considered long term having been out of work for more than a year.
The number of Spanish homes in which all members eligible to work cannot find a job rose in the fourth quarter to 1.8 million.”
Many people have been unemployed so long that they are denied benefits.
“Long-term unemployment has led to an increase in the number of people who are no longer entitled to benefits. There are now 686,600 households in which none of their members has an income of any kind.”
But this harm to workers has not been severe enough to please key European economists who bemoan that Spain “prevents wages from falling quickly enough.” Spain is suffering a Great Depression. Demand is grotesquely inadequate. The economists want to cut wages of workers, which will significantly reduce demand. Their idea of economic medicine is equivalent to a doctor wanting to bleed a patient.
TINA becomes TWNEA
The IMF, European Commission, and the ECB are referred to as the troika. Their meme throughout the crisis has been “there is no alternative” (TINA) to austerity, slashing workers’ wages, and mass privatization. The troika’s effort to spin Spain as it success story hit a big pothole when Spain announced on Thursday, January 23, 2014 that the unemployment rate had increased.
“Thursday’s figures were met with official silence in Madrid. But in an interview with El País, the European commissioner for economic and monetary affairs, Ollie Rehn, said that in Spain the EU had tried to combine the goal of solvent public finances with economic reforms.
‘There were no easy alternatives for Spain nor for anyone. Those that think there was a simple way to recover access to the markets without painful measures are wrong,’ he told the paper. ‘It will take 10 years to fix the Spanish crisis.’”
“Official silence” was a good strategy. Rehn’s comment shows the danger of a misplaced spin. Rehn admits that the troika’s Spanish success story is a fantasy. He hopes that they will be able “to fix the Spanish crisis” in “10 years” (i.e., in 2024). Spain’s property bubble peaked in late 2006. That means that theoclassical economists failed to stop a bubble that was hyper-inflating for at least six years (2000 – 2006) and that austerity has caused such a severe Great Depression in Spain that the most extreme EU propagandist for austerity hopes that it will take seventeen years (2007 – 2024) to escape the “crisis” phase. Rehn makes no guess as to how many years after 2024 it will take for Spain to recover fully and reach full employment. Rehn has consistently and dramatically underestimated the harm that austerity causes to the economy and the public. He is also the lead apologist for austerity so he has a vested interest in having it “succeed.” When Rehn predicts that it will take 17 years for Spain to fix the “crisis” phase of its Great Depression, one knows that he realizes the scale of the disaster that his theoclassical economic policies have inflicted on Spain.
Most nations recovered far more quickly from the Great Depression of the 1930s – and macroeconomic policies were primitive and often self-destructive in that era. There is no reason for Spain and other nations of the Periphery to be experiencing Great Depressions, much less Great Depressions of remotely this length.
Note that Rehn is implicitly assuming that there will be no material negative shocks over the next decade he concedes that the crisis will persist in Spain. Few economists believe that such heroic assumptions are likely to prove accurate.
Under the stress of being asked to explain why his great “success” of three weeks ago is a nightmare, Rehn abandoned TINA and adopted TWNEA. We need to focus on his exact words again.
“Ollie Rehn, said that in Spain the EU had tried to combine the goal of solvent public finances with economic reforms.
‘There were no easy alternatives for Spain nor for anyone. Those that think there was a simple way to recover access to the markets without painful measures are wrong,’ he told the paper. ‘It will take 10 years to fix the Spanish crisis.’”
Rehn now admits that there were alternatives to austerity and slashing worker’s wages. He argues instead that “there were no easy alternatives” (TWNEA). The (unspecified) alternatives to recover “access to the markets” would not have been “simple” and would have had to employ “painful measures.” The first obvious point is that this concession is fatal to Rehn’s claims and policies. An alternative obviously does not have to be “easy” to be superior to Rehn’s austerity and labor-bashing policy that produced a virulent Great Depression that Rehn hopes (if nothing bad happens in the world economy for a solid decade) will require 17 years to recover from the “crisis” phase. Logically, the alternatives are superior to the troika’s Great Depression strategy if they inflict less pain than Rehn’s optimistic alternative of 17 years of crisis.
The EU’s awful, but hidden “goal[s]”
Austerity as a perpetual “goal” rather than a means to an end
Rehn’s admission is even more fatal to his policies than it appears on first blush if one examines the ways in which he framed the debate to try to bolster the cause for a Great Depression strategy aimed at slashing workers’ wages. I know “solvent” sounds like it is a word and a concept that no sane person would oppose. The opposite of “solvent” is insolvent – broke, bankrupt – all words with powerful negative connotations.
Rehn has framed his claims cleverly, but he has crafted his framing to mislead the public and the media with the goal of causing them to support policies that will cause terrible harm to the public in general and the working class in particular. “Solvent” is code for austerity. Rehn’s framing is meant to cause people to assume that if the government runs a deficit it is “insolvent,” irresponsible, and headed for catastrophe.
As always, the austerians’ goal is to spread the meme that the government of a sovereign state is “just like” a household. Rehn, however, has overplayed his hand and revealed that the meme is false. Note that Rehn never defines “solvent.” He does not do so because if he tried the meme’s falsity would be more obvious. “Solvent” is an accounting concept. It is not a concept used in auditing governments with sovereign currencies because it is inapplicable.
Rehn implies that solvent means that the government must not run a deficit or there will be terrible consequences. There would be four insuperable problems if Rehn defined solvent in that manner. First, it was the crisis that caused the budget deficits rather than the deficits that caused the crisis. When there is a Great Depression workers lose jobs and income (reducing tax revenues) and more people receive unemployment aid and help from social programs (increasing expenses). Second, EU nations typically run budgetary deficits. Third the sky does not fall.
The fourth flaw is more fundamental. There is nothing morally superior about a sovereign nation running a budget surplus. If it does so when demand is already inadequate demand will become even more inadequate and unemployment will rise unless the nation is a substantial net exporter. (We can’t all be net exporters.) A Great Depression like Spain’s produces a large budget deficit because of the budgetary effects of mass unemployment that I have just explained. What the national government should do, as the overwhelmingly majority of economists agree, is to fill the inadequate demand through increased spending on useful projects. Doing so is the best, and often the only means of quickly reducing unemployment and pulling the nation out of a Great Depression. Austerity will slow the pace and extent of the recovery. Vigorous monetary policy is often ineffective in spurring recovery from a severe downturn.
Perpetual austerity in the form of a “balanced budget” cannot rationally be a “goal” of a nation state. The goal of a nation state must be the welfare of its people and a balanced budget would more often than not harm the people. Again, Rehn knows this. Even the EU is not crazy enough to mandate balanced budgets and throw the entire EU back into a gratuitous third recession in six years. It is essential to recognize that Spain, Italy, and Greece are in Great Depressions. Their unemployment levels exceed average unemployment levels for European nations during the Great Depression of the 1930s for the (few) nations from that era for which economists believe there are adequate data.
The goal of “economic reforms” is to reduce workers’ wages)
Rehn continues his misleading framing of the issues when he says that the EU’s second goal is “economic reforms.” As with “solvency,” this goal relies on the vagueness of the term. Once the term is made clear it also becomes clear to the reader that the term is Orwellian and the goal is despicable, self-destructive, and unworthy of any government. “Economic reforms” is troika trash talk that is code. The code can be paraphrased as: “force sharp cuts in worker’s wages.” This cannot be a legitimate goal of a nation state. It is class warfare in which the workers lose and the corporate CEOs become even wealthier. Rehn does not even try to explain why this is a legitimate goal. He cannot argue that corporate profits are “too low” and wages are “too high” because corporate profits are often at extreme levels. Rehn’s framing sets the workers of every EU state in competition with each other to see who will “win” the “race to the bottom” of wages and benefits. The Spanish are told that they must cut workers’ wages to be competitive with Italy’s workers (who are told they must cut their wages to compete with the Greeks). I call this the “Road to Bangladesh” dynamic.
Rehn’s statement of the EU’s goals reveals that those “goals” are not the legitimate goal of any EU member state. Rehn states that the EU’s goals are to reduce national government spending and sharply reduce workers’ wages. The EU’s goals described by Rehn are ideological, and achieving the goals would harm the people of the EU.
Note what goals don’t make Rehn’s list of the EU’s paramount goals
Full employment is not a goal. A prompt, dramatic reduction in unemployment is not a goal. Reducing poverty is not a goal. Providing superior education is not a goal. Making Spain’s recover sufficiently robust to stem the loss of its college graduates to migration is not a goal. Reducing inequality is not a goal. Preventing future crises by ensuring that each nation state vigorously regulates banks is not a goal. Reducing the global financial risk posed by requiring systemically dangerous institutions (SDIs) to shrink to the point that they no longer pose such a risk is not a goal. Acting vigorously against global climate change is not a goal.
Was there no “simple way to recover access to the markets without painful measures?”
Rehn has again tried to frame the standard such that anyone who disagrees with him must be irrational. Only adolescents believe that anything important in life is “simple” and “pain[less].” Maturity teaches that life is not simple and painless. But Rehn loses even though his rhetoric and framing were designed to stack the deck in his favor. The reason Rehn loses provides a wonderful irony and will bring us to the second article I recommend reading.
We need, however, to provide a brief overview of the aspect of the financial crisis that provides the setting for evaluating Rehn’s claims about the struggle of the nations of the periphery to “recover access to the markets” (that is jargon for restoring Spain’s ability to borrow).
The financial crisis and the inherent, critical flaws of the euro (in which member nations gave up their sovereign currencies) led to a death spiral in which the “bond vigilantes” (banks and hedge funds) would demand higher interest rates to buy sovereign debt of nations of the European periphery, which would increase their deficits, which would give the credit rating agencies the pretext to downgrade their ratings, which would further increase interest rates on the debt issued by the EU’s periphery nations. The ECB adopted a policy of encouraging the bond vigilantes – because they coerced the Periphery to make large cuts in budgets and to make “reforms” to slash wages. But the ECB did not want an actual default because that could lead the euro to unwind. The ECB, therefore intervened, typically after months of delays. It generally waited until a nation was on the brink of collapse. That gave the ECB the leverage to ensure that the nations of the periphery agreed to the troika’s demands to adopt its twin goals – austerity forever and slashing workers’ wages.
The troika discovered, however, that it had lost control of the bond vigilantes. The troika had outsourced the “leg breaking” role of the loan shark to private parties and the bond vigilantes found that turning financial crises into emergencies maximized their profits. The vigilantes’ coordinated assaults soon turned the EU’s periphery into the “crisis of the week” show.
“Spain was pushed to the brink of an all-out sovereign bailout in 2012 but was saved in large part by a European Central Bank promise to intervene if necessary on the bond market, lowering the country’s borrowing costs.”
The ECB was taking on tens of billions of euros in toxic assets and there was no end in sight. The situation was desperate and any adult “knows” that there was no “simple” and non-“painful” means to restore Spain’s ability to access the credit markets.
The ECB stops the bond vigilantes’ raids on the Periphery
The irony is that there was a simple and non-painful means for the ECB to stop the bond vigilantes’ attacks on EU nations. Benn Steil and Dinah Walker’s January 24, 2014 article entitled “The Euro Crisis is Dead! Long Live the Euro Crisis!” explains why we know Rehn was wrong and knew he was wrong about the terrible pain of restoring Spain’s access to debt markets.
“You’ve got to hand it to Mario Draghi. Never in the history of central banking has one man accomplished so much with so few words and even less action.
Since having announced the creation of the Outright Monetary Transaction (OMT) program in August 2012, Draghi has had the pleasure of sitting back and watching yield spreads between Spanish and German government bonds fall relentlessly without having to buy a single bond. Italian spreads have done the same.”
As soon as the bond vigilantes began their attacks a wide range of economists explained that there were simple and non-painful means by which the ECB could stop the bond vigilantes and urged the ECB to act urgently. Jean-Claude Trichet refused. Draghi, his successor as the head of the ECB, followed the economists’ advice. The results have been obvious for 18 months, so it is a testament to Rehn’s disregard for reality that he would make a claim about restoring “access to the markets” that everyone in finance knows to be false. But Draghi continues to use the ECB to extort EU nations to agree to the troika’s goals (austerity and slashing wages) to receive the ECB’s protection from the bond vigilantes. Draghi cheerfully runs a protection racket.
What about unemployment
Rehn didn’t claim that there was no “simple” and non-“painful” means of reducing unemployment and increasing economic growth. The EU does face complex and painful restrictions on nations that wish to decrease unemployment and increase economic growth. The EU is not a truly sovereign currency and by joining it nations give up the three most effective means of decreasing unemployment and increasing economic growth when they are in recession. They cannot provide meaningful fiscal stimulus, they cannot devalue their currency, and they cannot adopt an aggressive monetary policy.
The EU is acting like a runner who starts a journey by following the advice they read from som nut on the internet to shackle his ankles to a lead weight so that he won’t run too fast and break a leg. It’s true that the runner can no longer run, but that doesn’t mean there is no non-painful means of allowing him to run. He needs the keys to unlock the shackles and the education to understand that he should never listen to quacks like Rehn.
Nations can take excellent steps to run faster (and avoid breaking their legs) by creating a robust system of automatic stabilizers before the next crisis hits. The stabilizers help reduce the extent to which the economy falls during the recession, so the nation doesn’t have to dig itself out of as deep a hole, and they speed the recovery. The automatic stabilizers do inflict some pain when the economy is booming (taxes go up and progressive taxes increase more rapidly). But this pain is visited primarily on folks who are doing increasingly well in the boom times, so the pain is far from severe.
Rehn is talking about how counter-cyclical fiscal policy works in the other direction – when the nation is in a severe recession or depression. In those circumstances, the appropriate fiscal policy does not inflict pain. National government spending increases, providing vital services when they are most needed. Taxes are cut, particularly on those most in need if the tax system is progressive. Highly useful infrastructure and preventive maintenance can be provided that will benefit future generations.
Rehn, as a deficit hawk, would be aghast at the deficits and debts. Rehn repeats the error that FDR’s economists made in 1937 when they convinced him to choke off government spending increases – turning a strong recovery into the second trough of the Great Depression. Rehn would have warned in 1941 that the U.S. was entering into ruinous debt to fight World War II and that the debt would condemn the U.S. to decades of economic ruin. He would have been as wrong then as he has proven now. Even the IMF’s economists have admitted to being surprised about the great effectiveness of stimulus programs in this crisis.
It isn’t “simple,” particularly if the automatic stabilizers are weakened, to use fiscal policy to help reduce the severity and length of a recession. There are political difficulties and implementation difficulties. It helps to identify useful infrastructure and maintenance projects in advance of the crisis and plan before the crisis which programs will be done first. As inadequate in magnitude as the U.S. stimulus package was in this crisis, and as badly oriented towards tax cuts for the wealthy as it was, the data demonstrate its substantial effectiveness in reversing a sharp decline and producing a moderate recovery. The difficulties do not lie in the economics, but in the politics generated by austerians who demand that the government bleed the patient to make him better.
Great post! I have a question and it is: Why do bond markets embrace austerity? I can see how there may have been a Troika-bond market coordinated dynamic whereby bond traders profited from spread volatility linked to default risk and the ultimate announcement of bailouts. However, in today’s seemingly more stable environment, bondholders stand to benefit the more likely it becomes that Spain can service its bonds in full. Put differently, bond prices will increase the more robust the Spanish economy becomes. With that in mind, why are bond markets still pushing for austerity?
Bond traders are people that are paid to get things right. The economists at the banks they work for know that Spain’s private sector needs to run a financial surplus. They know that for this to happen, while avoiding the effects of a deflationary depression, the government needs to run a sufficiently large financial deficit, and/or the foreign sector needs to make up for the shortfall. They know that the later can lead to a “Road to Bangladesh” dynamic as you point out. The press also knows all of the above, as evidenced by a number of FT articles, including by Martin Wolf on sectorial balances.
All these market professionals and commentators can also see that evidence is mounting that austerity leads to poor macro-economic performance… and yet… austerity is still applauded. Again, why? Really? Is it that a) people are not as informed as I purport them to be, or b) they are just being irrational, or c) there is a conscious effort to make money through an austerity fueled deflationary depression, and if so, how? Again, logic suggests that current bondholders stand to benefit from a robust economy, not the contrary.
This paints a pretty strong picture and makes a very compelling case for Spain to leave the Euro. With a JG using a sovereign currency it could immediately decrease unemployment. This would help put the country back on its feet and maybe provide a good example to the US.
My first comment was a general comment and this is meant as more of a reply to AS.
This seems similar to the merger and acquisition corporate culture which runs companies into the ground while rewarding top executives. Unfortunately probably a natural reaction for some when there is no regulation or penalties for such action.
Not to disagree with the thrust of the article, but it is written as thought Spain were monetarily sovereign, and could choose to simply spend enough to raise aggregate demand to whatever level it chose. It can no more do that than Wisconsin or California could, spending only as much as what it can raise in taxes or borrowing. Are you suggesting that Spain should abandon the Euro?
As for useful maintenance and infrastructure projects, they should not be left for a crisis. Those are ongoing responsibilities of governments that need to be done in good times as well as bad. If neglected, they are indeed the first candidates to be done in a Great Depression, but they should not be countercyclical policy, and should not be again neglected when prosperity returns. Countercyclical policy (when needed in excess of automatic stabilizers) should be mainly through taxes.
“Countercyclical policy should be mainly through taxes.”
I think I agree with this point. The politicians only seem to come in two flavours though. “All taxes are bad” and “Taxes on rich people are good”, we probably need a new flavour of “Taxes manage aggregate demand”. Might be hard to convince non-econmists to like that flavour though.
Nobody who pays them likes any taxes, but they put up with them because they believe they are necessary and unavoidable (“the only certainties …”). And they don’t like inflation, either. With the overall tax burden going way down for 99% of us, I think it’s an easy sell. Remember the assumption is that MMT is our guiding economic theory. Many would believe that it is paid by the corporation, not by them, and to whatever extent they don’t spend their income – thereby helping to fight inflation – they would be partly right.
Oh, and the estate tax. The tax would be taken from recipients, and each recipient gets a $1M exemption. So if Warren Buffett leaves $50B to one person, 50% tax. If he leaves $1M each to 50,000 people, no tax. That would tend to disperse concentrated wealth, and reduce inequality.
Sorry, my tax plan was in a different article. The referenced post assumes that you know what it is:
Eliminate FICA
Keep the income tax, but simplify it and lower rates for the current brackets, and add new brackets at $1M and $1B.
Replace the corporate income tax with a business (not only corporations, all businesses) gross receipts tax at a low rate (maybe 3%) with no deductions or exclusions.
Add an “independent” board modeled on the Federal Reserve Board to periodically (maybe quarterly) adjust the tax rate of the business tax. The Board should have limited discretion, but Congress should specify rules along the lines of a Taylor rule about when and how much to raise or lower the tax rate, based on the JG work force and the inflation rate. Adjustments would be in tenths of a percent of tax rate.
If we’re at 2% JG workforce and Congress enacts new spending that caused a rise in inflation, the board would be required to raise the tax rate, choking off the inflation. Should Congress reduce spending, or the economy slow down, and the JG workforce begins to rise above 3%, the board would be required to lower the tax rate.
ALOHA! It is obvious that debt rules the world. One of Prof Steve Keen latest presentations to a room full of high level Ecuadorian politicians was to point out that as consumer credit and consumers falter government debt must rise otherwise employment suffers.
Still I doubt Prof Keen or even Mr. Black has ever been involved directly running public works projects otherwise the following statement would have been clarified more as to the word “useful”.
What the national government should do, as the overwhelmingly majority of economists agree, is to fill the inadequate demand through increased spending on useful projects.
First of all you have to address the usefulness of the Davis Bacon Act today, which is nothing more than a labor monopoly for unions. When I look at a Class II Laborer prevailing wage determination for the county of Oahu(Honolulu) I get $91,000USD($44.66×2040) annual wage. What is a ClassII Laborer? Essentially it is an uneducated ditch digger. If you go back to 2001 that same ditch digger laborer wage rate was $32.85, a 36% increase in cost over a 13 year period, or a 2.8% annual increase. Add in the increase in material cost to those public works projects and you understand better how politics distorts everything to the advantage of the few that organized to force their agendas on government. By no means has the average non-union worker wages benefited the same since 2001. Perhaps we need to revisit the word “useful” when it comes to government projects. I haven’t even begun to describe the cronyism in the public works procurement dept, whereby some of the largest US corporations maneuver to get the largest contracts by influencing architects and engineers in terms of preferential specifications. Pretty soon specifications start to take on what President Clinton’s infamous statement when questioned about his white house affair … “It depends on what your definition of the word “is” … is!” Only politics and politicians can debate what the word “is” … is! But this is the cronyism that determines which projects are “useful”.
Hawaii Wage Schedule link: http://labor.hawaii.gov/rs/files/2012/12/WRS481.pdf
I am sure that if even FDR was alive today he would be shocked as to how such an Act whose beginnings in 1931 has been obfuscated into a labor wage monopoly. The cost of “monopoly labor” on these public works projects has added multi-trillions onto the cost of dams, schools, prisons, freeways and all other “useful” projects since Nixon days. The sad reality is that whenever politicians are in control of the distribution of wealth(debt)it is rarely efficiently distributed and tends to be distributed to their largest campaign donors and voters(unions) and ends up in large part going to maintain military supremacy. Can we also agree that the Davis Bacon Act was enacted during a period of great financial strife in America, an era we call the Great Depression, yet somehow the Act remained in force to today even when the Great Depression ended. Certainly the Act has contributed to wage inflation since 1931.
Over the next few years, Bacon attempted to introduce variations on the prevailing wage bill 13 times. Finally, in the midst of the Great Depression, with local workers complaining about cheap labor taking their jobs and Congressmen frustrated that their efforts to bring “pork barrel” projects home to their districts did not result in jobs (and therefore political support) from their constituents,the Hoover Administration requested that Congress reconsider the Act once more as a means of preventing falling wages. Sponsored in the Senate by former Labor Secretary Davis, it passed by voice vote and was signed into law on 3 March 1931.
In those days the law was applied strictly to wages, but the Act has morphed since then and included healthcare, sick days, vacation pay and pensions, what is referred to in the wage schedules now as “fringe hourly rate”.
Most certainly I would not classify the Davis Bacon Act and the resulting prevailing wages as anything close to “austerity”. And so as it has always been throughout history those who suffer the most during times of hardship and depression are those who have the least political connections. Can we agree then that if these officials demand austerity that they reform the system so that the austerity is applied from the “top-down” not just to the bottom. You can still have deficits but why should cronyism be allowed? Besides what is wrong with having the most over leveraged banks collapse. I am sure it would not take long for those banks who practiced a more prudent business plan to pick up the slack. After all its not capitalism if banks aren’t allowed to fail. The message now is that there is more FDIC for the bank CEO than the depositors. JP Morgan hasn’t been around this long because they played by the rules. Once a monopoly always a monopoly.
One thing we can be sure of Bernanke is happy to let Yellen take the fall. I am sure he is sitting in a hot tub in Vail having a good laugh waiting for Obama to hand him a medal for his brilliance, patriotism and heroism under fire. In my days as a kid the bad guys on TV who tried to destroy “Truth, Justice and the America Way” all went to jail. Today they get medals …
sounds like the whole philosophy in Europe is to just give up?
that works for the old folks, but never resonates with teens;
I smell a revolution around the corner, one way or another;
gotta wonder if, 10 years from now, Ollie Rehn will be in prison for “cultural war crimes”
TWNEA?
there were no easy alternatives? or …
there will be no easy alternatives?
(define “easy”: and for whom?)
maybe we’re being weakened … for an alien invasion?
that would be left embarrassing than doing this to ourselves 🙁
alien sedition … yeah, that’s it! (I knew there had to be a logical explanation)
Having watched economic policy and statistics for year, I have to wonder if there is more to Spain’s problems than what you are saying.
Back in the 1980’s and 1990’s long before the Euro monetry union, Spain also had intractable 20%+ unemployment. Spain as a country is not particularly blessed with great resource base to support a great population, and it does not have a reputation as a manufacturing and trading country. I remember thinking at the time that Spain simply had too many people for its resource base, and that the ultimate solution to thunemployment problem would be to send about 10 million of Spain’s 40 million – the unemployed and their families – overseas to one of Spain’s many underdeveloped daughter countries such as Argentina, Columbia, or Venezuala which have land, resources, and a need for human development that could be provided by the uneployed of Spain.
Spain is basically a failed state, and has been since the Arab invasion in the 700’s. It did not have the internal coherence necessry to resist the Muslims in the 700’s the way France did then or Austria did 800 years later, it was only united by force, and its minorities – the Basques, Catalonians, and Galacians have never wanted to be part of it. It was propped up for a time by the luck of being the first to the riches of the New World, but even mountains of silver and gold brought over from 1500 to 1800 were unable to make anything of the place. If the proverbial money tree in the backyard couldn’t make anything of the place then, why should it now? An economy cannot be constructed simply by throwing money about – it requires a resource base and/or foreign trade. Spain has had repeated civil wars and the politics is hopelessly divided between two parties who have proven they would love nothing more than to exterminate the other half of the population. Despite much arable land and invested capital, it cannot feed itself as France can. The one cereal crop it is really good at producing – barley – it has little use for as it is a wine drinking country first, not a nation of beer drinkers. Its economic profile is roughly that of Florida – good for citrus, herdsmen, tourism and retirees, with a smattering of cheap labor manufacturing in an increasingly automated world focused on craftsmanship.
Very interesting, esp the history.
You made a good point about the solution of sending people away.
I recall a video by Michael Hudson in which he said emigration, along with cutting wages, benefits, any worker protection…these are the neo liberal “market” solutions! Cut workers help and ship people away, this will make the country competitive!
Then from the 90s on inflate some bubbles!
I think you are right, 26% unemployment…is this the official? If so, what is the “real” rate of unemployment? And how weak is the labor market in reality? You are probably right, things are most likely worse than reported.
Brian:
I don’t think it is correct that a land can support any given population if only it had the right economic system. Malthus’ work is pretty clear that any given land at any given level of technology is going to have a certain carrying capacity in population based on what it is able to produce economically. The key inputs being food and water to support the population. If a land is not self-sufficient (and Spain is not), then it must produce raw materials and finished goods other people want to trade for food from those with a surplus. As I noted, Spain has no history of producing manufactured goods desired by the world, and it lacks any abundance of raw materials. Its basically the Florida of Europe. Tourism, citrus growing, olives, wine, and retirement homes don’t make for a First World economy.
Spain’s recent past 500 years of economic history is primarily of minting silver coin from San Luis Potosi and using it to buy needed things it did not have, and sending away surplus population as emigrants to Latin America. I think this should be thought of and studied of this as an early form of MMT – endless coining of new money to create economic growth via government spending.
Latin America continues to be resource rich and people poor and thus underdeveloped and exploited by foriegners, while Spain is the opposite. Spain has over twice the population density of Argentina, Venezueala, and Columbia. all of which have far more ongoing and future economic propsects than does Spain itself give the natural bounty of the land and soil. The solution to many woes in both Spain and Latin America is obvious, and is simplified by the common language.
It’s not just austerity it’s austerity with high taxation. This double whammy is killing Europe, but is also making the lesson about austerity hard for fiscal conservatives to see…they just blame the high taxes.
Why do Spaniards, particularly Spanish youth put up with this? Do they also believe TINA? The lack of social unrest is surprising … not that I want to sound like an advocate for violence.
Those who dont learn from history are doomed to repeat it they say?
How striking current times are to the 30s (though not nearly bad except in perophery EU) and all this talk about slashing deficits is just like 1937.
Really pretty scary, except it’s even worse! We are not just doomed because we’ve failed to learn history, we’ve been taught it wrong from the start.
Government deficits are bad, except maybe kinda sorta in recession, but even then let’s keep it under control esp the moment we have any “growth”. Let the markets work, which means cut wages, hours, everything the worker has to stay competitive and let the markets “work” We need to “take our medicine” even though the politicians screwed up…it’s unfair but this is why politicians are awful.
This is what we’re all taught sadly. And even more recently we’ve seen papers written about how the New Deal really prolonged the depression! By 7 years they say, and how it was not WWII spending and gov action that saved us, no that was “phony”and it was the dropping of gov spending post WWII that really saved us. I’ve seen all this floating around the internet and it makes a compelling case, if you want to believe it.
Guess point is, we are taught a flawed history…we can’t learn from the GD of the 30s becuase many of us blamed all the wrong things through school! Gunna be hard to undo the neo classical dogma damage