[This is the second of a three part ZNet commentary series this month, about global economic crisis and relating to Greece, by Peter Bohmer and Robin Hahnel. Hahnel spoke at the Greek anti-authoritarian movement’s B-Festival in Athens last May and Bohmer will be speaking at the festival in Thessaloniki in September.]
At the recently concluded G-20 meetings in Toronto Canada the leaders of the major economies issued a communiqué pledging to cut their budget deficits in half over the next three years. Instead of draconian fiscal austerity, what is needed is a massive, globally coordinated, fiscal stimulus to pull the economy out of the worst global recession in over eighty years. In Greece, when PASOK was in opposition it called for pro-growth policies favoring middle income sectors. Now, as Prime Minister, Papandreou is presiding over policies even more draconian than those of the previous right wing government he and PASOK criticized. How does one explain this madness?
One possibility is that many in the economics profession have contracted amnesia and forgotten the most important economics lesson learned during the twentieth century – governments must spend more when the economy is depressed and save only after the economy has recovered — and that center left, along with right wing politicians, have now made the mistake of embracing the advice from misguided establishment economists to do just the opposite.
Two Nobel Prize winning economists, Joseph Stiglitz and Paul Krugman, who have not forgotten Keynes’ lesson believe this is exactly what has happened, and there is evidence to support their hypothesis. Keynes was only able to successfully challenge the wisdom of traditional, balanced budget orthodoxy which requires governments to cut spending when recessions reduce their tax revenues with a powerful assist from practical experience during the Great Depression. Moreover, even when conservative economists like Milton Friedman and right wing politicians like Richard Nixon were quoted saying “We are all Keynesians now” during the late 1960s and early 1970s, many economists and politicians remained uncomfortable with Keynesianism and were already hard at work organizing an economics counter revolution. Over the ensuing decades establishment economists labored mightily to write Keynes out of their macroeconomic theories, models, and text books, and conservative politicians happily reverted to their pre-Keynesian, balanced budget orthodoxy. These conservative politicians and their advisers focused on balanced-budgets and zero inflation in order to accomplish their real agenda — decreasing the bargaining power of working people. There was never any great mystery about why right wing political parties pushed an agenda designed to increase unemployment rates, weaken unions, and raise the cost to workers of being unemployed by cutting the social wage.
But now center left political parties are embracing the same economic policies and consorting with anti-Keynesian macroeconomists, leaving the likes of Krugman and Stiglitz to wring their hands on the sidelines. Is this simply an intellectual mistake on their part? What if we drop the assumption that the purpose of today’s economic policies is to rescue us from the Great Recession, and put in its place the hypothesis that center left political parties are now aimed at benefitting higher income groups rather than promoting the interests of their former political constituencies.
After all, for decades prior to the financial crisis of 2008 and the onset of the Great Recession neoliberal economic policies were championed by center left as well as right wing governments. Not only Margaret Thatcher and Ronald Reagan, but Tony Blair and Bill Clinton also claimed that neoliberal policies would improve economic performance by removing unnecessary and counterproductive shackles on corporate creativity. But while privatization, deregulation, tax cuts for corporations and the wealthy, capital liberalization, and trade liberalization did not increase global growth rates or reduce poverty as advertised, these policies did greatly enhance corporate power, disempower workers, consumers, and citizens, and produce the greatest redistribution of income and wealth from poor to rich the world has ever seen. It is now apparent that these neoliberal policies which laid the groundwork for the present crisis were never about improving economic performance, but merely about redistributing power, income, and wealth. So why should we now believe that the same center left political parties, following the advice of the same economic advisors, actually believe, or care if lavishing generous bailouts on banks without conditions while imposing fiscal austerity on workers and ordinary citizens will pull the global economy out of recession? There is a more simple explanation for the behavior of today’s center left politicians, which is becoming more credible by the day.
Fiscal austerity and stalling financial reform in response to the worst financial crisis and deepest recession in eighty years is not about improving economic performance as its proponents claim. These policies are simply about continuing to shift income and wealth from the poor to the rich, and from the manufacturing sector to finance, insurance, and real estate (known as FIRE) which have become increasingly ascendant in the US and Europe — despite the fact that these policies will worsen the economic slump and make another financial crisis likely.
The claim that fiscal austerity during recession is “good economics” when it is actually “bad economics” is merely a “cover story” for public consumption. As for why center left political parties and politicians now support this disastrous policy, the simple answer is these parties no longer care about economic performance, much less the interests of workers and the poor, but instead identify their interests with those of Wall Street and the upper middle class who appear to be the focus group for the Obama Administration and Nancy Pelosi. Democratic Party politicians used to promise to press for policies to help workers, minorities, and the poor. They usually failed to do so, but that was their campaign rhetoric nonetheless. But for many election cycles in the United States Democratic Party candidates have been promising instead to champion the interests of what they call middle-class Americans. If center left politicians no longer make a secret of pretending they are concerned about unemployed workers and the poor, why should we be surprised when they adopt policies detrimental to their interests?
Voters in the UK already sent Gordon Brown and the Labor Party packing. Will other center left politicians and their parties — Zapatero and the Socialist Party in Spain, Papandreou and PASOK in Greece, and Obama and the Democrats in the US — who agree to impose fiscal austerity also be punished at the polls by voters who know we did not create the crisis and are furious at governments who subject us to counterproductive austerity? When center left politicians echo false hopes that the economy is recovering promoted by right wing think tanks and the corporate owned media who shout “green shoots” whenever the prices of bank stocks or an index of consumer confidence stabilize momentarily, even while unemployment and home foreclosure rates hold steady or worsen, one can only hope they badly miscalculate their own political self-interest.
But it is apparent that more and more center left politicians are quite willing to gamble that they can bamboozle a guileless public into thinking that fiscal austerity is necessary and wise and avoid voters’ wrath. It is also increasingly apparent that center left political parties are more afraid of angering Wall Street and upper middle class funders by opposing policies that continue to redistribute income and wealth their way than they are of angering ordinary people who have traditionally voted center left because the right wing alternative is even worse.
However, people know when either they or some relative or friend has lost their job or home. And they will eventually turn on those who persist in telling them that the economy is recovering when they know it is not. The question is where voters will turn when they abandon traditional center left parties who have abandoned them.
What is needed are social movements and new political parties who answer to and are led by those whose interests are being trampled on, who fight for policies which actually do generate high employment and greater economic equality, and who say no to counterproductive fiscal austerity, trickle down economic nonsense, and corporate sponsored globalization. We need to build movements and parties which will take power back from multinational corporations and Wall Street, and launch the kind of Green New Deal needed to address the economic and ecological crises which otherwise will continue to worsen by the day.
Peter Bohmer is Professor of Political Economy at Evergreen State University in Olympia Washington. Robin Hahnel is Professor Emeritus at American University in Washington DC, and Visiting Professor of Economics at Portland State University in Portland Oregon.