Regular readers understand the three dynamics that drive economists crazy about the New York Times’ coverage of the troika’s infliction of austerity on the Eurozone. The troika consists of the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC).
- NYT reporters treat austerity as a response to the eurozone’s Great Recession as obviously the only possible response – they rarely discuss alternative policies or views
- The NYT refuses to inform its readers that economists overwhelmingly consider this malpractice and that it has caused catastrophic and gratuitous harm
- All of this is particularly bizarre given the NYT’s economist, the Nobel Laureate Paul Krugman, who writes regularly in the paper to explain why austerity is a disastrous response to the Great Recession. The NYT eurozone writers routinely ignore Krugman (and anyone else who makes the same point).
The massive, wholly avoidable harm caused by “bleeding the patient” to make him well (austerity in response to a recession) for the people of the eurozone is stark, but typically minimized or wholly ignored by the NYT reporters. Roughly one-third of the population of the eurozone lives in nations with Great Depression levels of unemployment.
The latest entry in the NYT contest to author the most economically illiterate sentence about austerity in the eurozone was published on September 30, 2014 in an article entitled “Eurozone’s Drop in Inflation Carries More Fears of Another Recession.”
“To return to meaningful growth, economists say, the eurozone probably needs a combination of measures, including more-powerful stimulus from the central bank, like government bond buying; more government spending by countries that can afford it, like Germany; and deep changes in the regulations that govern business and labor in France and Italy.”
Any sentence that uses the inane phrase “economists say” is likely to end in embarrassment. What economists? The last two the reporter talked to in a bar in Brussels? The economists who have gotten everything wrong?
But I haven’t got to the glaring flaw of the sentence, the clause that represents fingernails scraping the blackboard – “more government spending by countries that can afford it, like Germany.” This is so wrong on so many levels that the reporter has betrayed how epic and basic his inability to understand economics is. The issue isn’t whether Germany should provide “more government spending” – it should. The issue, which escapes the reporter, is why Germany should do so and the analytical implications of the answer to that question. The obvious related questions, which the NYT refuses to ask, are why the eurozone was thrown by the troika back into a gratuitous recession by austerity, why roughly one-third of the population of the Eurozone lives in nations with Great Depression levels of unemployment, why the ECB)has been unwilling and unable to even come close to its inflation target, why Italy has been forced back into a third recession in six years, and why Germany’s economy is stalling even a full six years after the acute phase of the global financial crisis.
There is a common answer to each of these questions – an answer that economists overwhelmingly agree on as Krugman and we keep emphasizing – demand is woefully deficient in the eurozone and austerity further reduces demand. As we keep emphasizing, even the IMF – which has long hired the acolytes of austerity – has reported studies demonstrating the great success of fiscal stimulus and the self-destructive nature of austerity. The true insanity is that the NYT reporter knows that demand in the eurozone is grossly inadequate, that inadequate demand causes massive unemployment and has caused inflation to fall to levels that further reduce already inadequate demand, that austerity further reduces demand, and that increased government spending would add to demand and aid the recovery and reduce the suffering of the victims of austerity. For bonus points, it is less clear but it appears likely that the reporter also realizes that monetary “stimulus” is often highly ineffective against a Great Recession. To sum it up, the reporter knows the facts essential to get the policy (and the reportage) correct – and still manages to butcher the policy and logic itself.
The reporter knows that the eurozone’s paramount problem is severely inadequate demand. These passages demonstrate that fact:
“FRANKFURT — The drop in eurozone inflation reported Tuesday was, in one sense, just a decimal point, another digit in the daily flow of depressing economic data. Yet it raised an increasingly urgent question: What will it take to arrest the Continent’s slow-motion descent toward another recession and, possibly, a renewed existential crisis?
It has been almost two years since inflation in the eurozone was at 2 percent, right around the level that the European Central Bank considers optimal for stability and growth. In September, according to an official estimate published Tuesday, the annual rate of inflation fell to 0.3 percent from 0.4 percent the month before.
Inflation is at a five-year low, leading many economists to warn that the eurozone economy is in danger of officially tipping into deflation. But even the current low level of inflation can cause consumers to delay making purchases, companies to lose revenue and unemployment to soar from already high levels.
The decline in that [core inflation] rate is potentially more worrying for the central bank because it is a more direct reflection of slack demand and the poor health of the eurozone economy.
Indeed, there is evidence that bank lending is held back not by a shortage of credit but by a dearth of creditworthy borrowers who are confident enough about the future to want to invest in new employees and in expanding their businesses.
‘There is no demand, because nobody is doing anything,” said Stefano Micossi, director general of Assonime, an Italian business group. ‘Everybody is waiting.’”
This should have led the reporter to three obvious policy conclusions: austerity made the problem of insufficient demand worse, fiscal stimulus is the essential means to increase demand, and the need to end self-destructive austerity and begin fiscal stimulus is greatest in the nations suffering the most from inadequate demand.
The corollary to these points is that government expenditures can be substantively good, regardless of their stimulative effect, because they reduce human suffering, prevent abuses, and improve growth does not appear in the article. It would also follow logically that these benefits would be greatest in the countries suffering the most from depressed demand.
This is where the NYT article hurtles off the rails when it (approvingly) claims that “economists say” that there should be “more government spending by countries that can afford it, like Germany.” I’ll discuss three reasons why that clause is breathtakingly illiterate. First, fiscal stimulus is most desperately needed in the periphery where austerity has inflicted the greatest harm by reducing already inadequate demand and reducing public services when they are most needed by the victims of austerity.
Second, why does Germany need fiscal stimulus? That is an easy question to answer if one is economically literate, but it is impossible to answer if one is a proponent of austerity. The proponents of austerity assured us that it was a pro-growth policy. When the proponents of austerity were pressed on these assurances they waffled but claimed that any contractionary effects of austerity were short-term while they had the long-term effect of powerfully increasing growth. It has been six years since the crisis phase of the financial crisis and Germany is the self-proclaimed poster child for the glories of austerity and the suppression of workers’ wages. In particular, the austerians promised us that austerity would bring the “confidence fairy” to bless the eurozone. Read again the two last paragraphs of NYT article quoted above: austerity kills rather than attracts the confidence fairy.
Third, what does the reporter think he means by the phrase “by countries that can afford it?” He gives Germany as his only example of a country that should increase “government spending” because it “can afford it.” But why can Germany “afford” to provide “more government spending” and why can’t other eurozone nations that have far greater needs than Germany for fiscal stimulus “afford” to provide it? That would be an impossible question for the reporter to answer because it is a non sequitur. The thing that the peoples and nations of the periphery cannot “afford” is austerity, the mass killer of jobs, families, and dreams. Germany also cannot “afford” austerity, which has caused its growth to stagnate and risks pushing it into austerity. Germany’s austerity is so severe that it is running a budget surplus.
The only logical interpretation of the NYT reporters phrase about nations that can “afford” stimulus is that he thinks that only a nation with a budget surplus can “afford” to provide “more government spending.” That means that he thinks deficit spending in response to a Great Recession is impossible or imprudent because the nation cannot “afford” such spending. That view is economically illiterate and has resulted in economically illiterate and self-destructive EU fiscal rules mandating austerity. Those rules, however, are self-inflicted by the EU and could be removed by the EU.
The NYT first explains why austerity in response to a recession constitutes economic malpractice because it exacerbates already inadequate demand. The NYT then concludes that austerity in response to a recession is essential because a nation cannot “afford” to provide “more government spending” in response to a recession. Why can’t a government “afford” to provide “more government spending” in response to a Great Recession? Why can a government “afford” to push millions of its citizens into unemployment through austerity but not “afford” to employ them and speed the economic recovery?
One will never learn these answers by reading the NYT or Wall Street Journal’s coverage of the troika’s infliction of austerity – the worst “own goal” in economic history. It is revealing that the NYT and the Murdochized WSJ coverage of eurozone austerity is indistinguishably neo-liberal, economically illiterate, logically incoherent, and strikingly indifferent to the fate of the victims. The articles in both papers now frequently provide facts showing that austerity has failed and why it causes such massive harm in the eurozone, and then proceed to ignore or rule out fiscal stimulus and focus almost exclusively on ECB policies and the “need” to reduce workers’ wages.