The New York Times Admits that “Many Economists” Criticize EU Austerity

By William K. Black

Under the principle that one should bestow a special welcome on the tentative steps that the prodigal daughter takes to return to economic reality I write to praise Liz Alderman’s column entitled “France Produces a “No Austerity’ Budget, Defying E.U. Rules.”  The column contains a sentence that represents a breakthrough in the New York Times’ horrific (non) coverage of Eurozone austerity, its abject failure, its self-destructive nature, and its victims.

“But many economists believe that crimping spending during a downturn has impeded economic growth, which in turn has made it harder for those countries to reduce their deficits and debts.”

Now, I’m the first to admit that the sentence just quoted would be a grave disappointment from a junior majoring in economics.  It fails to provide any explanation of why austerity “impeded economic growth.”  The article does not include the word “demand” (in its economic usage).  Still, relative to other NYT articles about eurozone austerity it’s by far the best.

By way of encouragement, here are five basic points that the NYT could use to present the reality.

  1. Economists overwhelmingly believe that recessions are caused when demand becomes seriously inadequate.
  2. Fiscal austerity in response to a Great Recession is self-destructive because it further reduces already inadequate demand, which will extend the length and severity of the harms caused by the recession and can trigger recurrent recessions.
  3. The troika claimed that austerity was expansionary even in the context of a Great Recession.
  4. Opponents of fiscal stimulus claimed it would fail and would produce severe inflation.
  5. The claims by opponents of fiscal stimulus proved false as conceded even by the International Monetary Fund (IMF), which is part of the troika that inflicted austerity on the eurozone.  Fiscal stimulus not only stimulated faster growth, it did so even more powerfully than hoped.  Fiscal stimulus in response to the Great Recession did not produce undesirable inflation.  Austerity caused the eurozone to fall into a second, gratuitous Great Recession with roughly one-third of the eurozone’s population suffering Great Depression levels of unemployment and severe emigration.  Austerity has pushed Italy into a third recession in six years and has forced the eurozone into inadequate and falling inflation that has helped produce economic stagnation.

Now for some advanced understanding.  The sentence I quoted implies that austerity is only self-destructive because it “has made it harder for those countries to reduce their deficits and debts.”  The NYT cannot comprehend that the deficits are too small and that reducing the deficit too rapidly is a superb means of producing rolling recessions and stagnation.  In short, the NYT is still so reflexively hostile to deficits that it manages to treat them as horrible even in a sentence that states that “many economists” believe that they are desirable in the eurozone’s context.

Note two vital points that do not appear in the “many economists” sentence.  Austerity has not only “impeded economic growth” and its disastrous economic implications go well beyond deficits and debts.  It has caused gratuitous Great Recessions and Great Depression levels of unemployment in much of the periphery.  It is causing enormous emigration of young adults.

Worse, the preceding sentence of the NYT article, which is necessary to understand the full context of the “many economists” sentence, is a clunker.

“Germany has encouraged austerity in other countries, including Ireland, Greece, Spain and Portugal, as a way to keep the euro debt crisis at bay.”

No.  First, Germany has extorted austerity and a war on workers’ wages throughout the E.U.  Angela Merkel is not some cheerleader who “encourages” the football guys through a rousing cheer.  Merkel exploited the bond vigilantes’ attacks on the periphery and Germany’s de facto control of the ECB to obtain enough leverage to issue her diktats that forced the periphery to accede to austerity and the war on workers’ wages.

Second, Germany has not extorted austerity “to keep the euro debt crisis at bay.”  Austerity was a major aggravating factor of the debt problem.  The debt problem was easily dealt with by the ECB as my colleagues and I explained it could be.  (The Irish debt crisis was caused not by any Irish fiscal excess but the spectacular “own goal” of the Irish government deciding to gratuitously bail out (largely German) creditors of Ireland’s failed banks.)  Merkel’s political goal was to destroy the ruling parties of the left in Greece, Spain, and Portugal by forcing these parties to betray their principles and their voters and force their economies into recession by inflicting austerity.

Third, Germany claims that austerity is expansionary and that budget surpluses are morally and fiscally desirable.  Germany faces no “debt crisis,” yet it continues to run a serious fiscal surplus and a war on workers’ wages that leads to serious underinvestment in its infrastructure and inadequate consumer demand from working class Germans.  The current result of its twin economic policies of austerity and wage suppression has been stagnation in Germany and stagnation or renewed recession in the eurozone.  German “success” has come overwhelmingly from a neo-mercantilist policy of promoting net exports through German wage suppression.

This is not a strategy, of course, due to the “fallacy of composition” that can work for the eurozone as a whole.  Indeed, the larger Germany’s net exports are the less successful other nations would be were they to try to mimic Germany’s strategy.

The incoherence of even this NYT article on EU could be excused in part by the incoherence, ineptitude, dishonesty, and cowardice of the justly despised French President François Hollande.  This is the confusing fashion in which the article begins.

“PARIS — France declared independence from the European Union’s austerity-budget regime on Wednesday. But a sharp political reaction at home made clear how difficult it may be for President François Hollande to lead the nation’s flagging economy back to steady growth.

Under pressure from the European Union to mend its finances, officials in Mr. Hollande’s cabinet presented a budget blueprint designed to cut 50 billion euros, or $63 billion, in domestic spending over three years. But they refused to implement the cuts any faster than that, warning that doing so would endanger the country’s feeble economy.

‘No further effort will be demanded of the French, because the government — while taking the fiscal responsibility needed to put the country on the right track — rejects austerity,’ the government said in a statement.”

Hollande, of course, is lying.  Far from declaring independence from austerity he is continuing to inflict austerity on France at a terrible time when austerity is forcing France back into recession.  What France is doing is slowing the rate at which it rachets up the self-destructive austerity demanded by Merkel.

France is not being “pressured” to “mend its finances.”  France is being pressured by the troika to ruin its finances through even more self-destructive austerity.  The NYT reporter uses the word again later in the article as a statement of undisputed fact that austerity “mends” an economy that is sliding into recession.  The reporter’s concession that “many economists” think austerity ruins instead of “mends” an economy sliding into recession obviously has not influenced the reporter’s acceptance of austerity myths.

The “sharp political reaction at home” against Hollande’s lies about austerity has not “made clear how difficult it may be for … Hollande to lead the nation’s flagging economy back to steady growth.”  Indeed, that sentence is another “tell” that the writer still thinks austerity brings a “flagging economy back to steady growth.”  The “sharp political reaction” came from the economically literate and progressive wing of the ruling party.  The “sharp political reaction” is against Hollande’s giving in to Merkel’s self-destructive austerity demands, which is a betrayal of his campaign promises, the citizens of France, and common sense.  The “sharp political reaction” is against Hollande’s dishonesty about that betrayal and his purge of the members of his government who opposed austerity.  Logically, the only manner in which the “sharp political reaction” against austerity could have “made clear how difficult it may be for … Hollande to lead the nation’s flagging economy back to steady growth” is if one believes that austerity in response to a “flagging economy” “lead[s] to steady growth” by further reducing the economy’s already inadequate demand.  The reporter takes that position as if it were indisputable fact as opposed to a repeatedly falsified myth.

To end on a positive note, even though the NYT reporters are austerians to the core, one of them has finally admitted that “many economists” believe that it is self-destructive to further reduce inadequate demand in a recession through austerity.  Austerians, of course, have proven impervious to date to economic theory, economic history, logic, and observed results during the current crisis, so we have a long way to go.

One response to “The New York Times Admits that “Many Economists” Criticize EU Austerity

  1. Joe Firestone

    Hah! They’ve even been blind to the implications of spreadsheet “errors.”