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The Weakening Case for Austerity

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(Article changed on May 13, 2013 at 14:49)

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by Sinn Fein

For sometime elsewhere, for instance, in Austerity Again and more recently Bad Results Follow Flawed, I have been articulating the notion that austerity as the path to economic growth is devoid of credibility. A recent piece in New York magazine titled "The Facts are in and . . . is Wrong" by Jonathan Chait carefully drives another stake into the heart of the austerity corpse. 

Perhaps, it's overkill but austerity is like a zombie--it does not stay dead. There is no lack of data on the effects of the imposition of Structural Adjustments Programmes (SAPs) on African countries by the Word Bank (WB) and the International Monetary Fund (IMF) in the 1980s and 1990s. The results of these efforts have not been commendable and, if anything, have made a strong case for not replicating the same mistakes elsewhere. However, rather than viewing SAPs in Africa as a cautionary tale of bankrupt ideas, deficit hawks persist in framing the political discourse around economic growth in terms of austerity. And regrettably policymakers in the EU are foisting the same austerity paradigm on hapless member countries like Greece and Spain where the unemployment rates are 27.2 percent and 27.2 percent, respectively. No, this is not an optical illusion.

Absent evidentiary support for austerity, some "reputable" economic analysts have sought to discredit advocates for economic recovery, based on government spending expansion in times of economic weakness. Recently, in the news media one voice, Harvard history professor Niall Ferguson argued that the eminent economist John Maynard Keynes's sexuality discredits his economic theories. That is like saying, Michelangelo's sexuality discredits his great paintings--"The Pieta" (in St. Peter's Basilica, Vatican) and "The Creation of Adam" (in the Sistine Chapel, Vatican) and his sculpture--"David" (in the Galleria dell'Accademia, Florence, Italy); nor does Shakespeare's sexuality (speculative) condemn Hamlet or Julius Caesar; or senator Barney Frank's sexuality defines him and makes him unworthy of an audience or discounts his legislative achievements. Such thoughts are ludicrous, of course. And it is amazing that otherwise brilliant minds will succumb to such faulty connections. It is better to attack a body of work on merit; on methodology; on internal consistency; on structure; if the conclusion follows from the argument or the evidence. But ad hominem broadsides like citing something such as an author's ethnicity, gender, or sexual orientation to discredit their work, gives the impression of laziness, and frustration that one's own argument in the heat of debate are not substantive and cannot hold up to close scrutiny. Further, this most recent attack on Keynes ignores the extensive body of work by economists since the 1930s that support Keynes' arguments and policy prescriptions for economies in depression-like circumstances.

The doubling down by deficit hawks on the questionable merits of austerity is understandable only when ideology is factored into the analysis. But even flaws identified by Thomas Herndon in the study by professors Carmen Reinhart and Kenneth Rogoff titled "Growth in a Time of Debt" have not deterred the austerity advocates who based their arguments on this work.  What Thomas Herndon did is an example of the best tradition of research; he did not disparage the work of Rogoff and Reinhart, but he tried to replicate their results. They in turn provided the data that they used to churn out their analysis. Their product in the end benefited from this outside contribution because it brought into the open methodological flaws that skewed the findings of the research. The authors publicly admitted their methodological errors. However, the policymakers who relied on this research to insist on austerity have not to date, to the best of my knowledge, distanced themselves from it.

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Despite the evidence against austerity, the most ardent anti-stimulus cliques are also inclined to assert that the slow economic progress of the U.S. economy is prima facie evidence that stimulus does not work. When ideological proclivities inform public policy the outcome can be toxic on many levels--the recent deficit cliff squabbles, and the irrational focus on the debt in a weak economic environment spawned the debt crisis. Add to this toxicity the bad-mouthing and rejection of stimulus funds, and a dizzying array of plots by the political elite and policymakers to ensure the failure of programs intended to speed up economic growth. And of course, there is sequester, which in the extreme could abort the shallow economic recovery. All of these things are part of a broader problem: the loss of respect for differences in political views; the rancor of the political discourage that descends into name-calling, etc. Both democrats and republicans take absolutist positions on policy, believing their way of dealing with the current economic crisis in the only way. This is so onerous that in some places anything that does not comport to strongly held beliefs is evil, unpatriotic, and rooted in conspiracy. The political arena is like a virtual warzone, replete with landmines, and political opposites are enemies. In this framework, at any time one's every word or action could trigger an explosion in one's face in the form of acerbic critiques, name-calling, and in the highest office of the land, calls for impeachment. This environment of suspicion and mistrust can breed timidity and misplaced loyalties to political parties instead of loyalties to the country. 

All the political gamesmanship in Washington, the use of filibuster, sequester, and anything else appears intended to thwart economic growth for political gain. But we can trace the genesis of the disfunctionality in Washington to intransigence over the budget, to the divide between policymakers on opposite sides of the political divide, who believe that getting people back to work is the best antidote to the anemic economy versus the people who believe balancing the budget is the answer. The latter appears to have the upper hand. They put down hard markers--no tax increases; just spending cuts, while the president submits a budget that calls for some revenue plus spending reductions, his budget was stillborn. Budget deficits are bad the argument goes and for all our sakes must be fixed immediately come hell or high water. If the ideologues demands are not met like spoiled brats, rather than statesmen, they throw tantrums; they stomp their feet, and they refuse to eat their peas. Similarly, politicians--the representatives of the people--resort to hurling threats at each other, and then threaten to shut down the government, even when such behavior leads to a ratings downgrade of the country and can even stymie the slow economic recovery. At least it feels that way; that is as if politicians don't care about the country, but only about their own chances for re-election. Where are the statesmen who understand and practice statecraft, who understand that compromise is necessary in a country where there are sharply divided voters; and elections are democracies' ways to settle questions about what public goods and services the people want? Elections put people in office--based on the popular or Electoral College votes--to pull the levers of government and make their public goods choices appear.

Unfortunately, a defining trait of deficit hawks is the tenacity with which they adhere to the dogma they believe in for the fix of the economy--namely, austerity. They don blinders when they are presented with alternative solutions. It has to be comforting to "known" you are correct and everyone else is not; that your absolutist view of the world is infallible, maybe even divine, in which case there's no need to yield an inch. But the world is far more complex for when the hard sciences are less open to question, the social sciences try to analyze human behavior (subject to fantasies, hysteria, whims, dreams, etc.) in political and economic circumstances. Here flexibility and give-and-take are essential to understanding our problems and moving forward with solutions. 

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Seymour Patterson received a Ph.D. in economics from the University of Oklahoma in 1980. He has taught courses and done research in international economics and economic development. He has been the recipient of two Fulbright awards--the first in (more...)

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The advocates of austerity ignore ... by Seymour Patterson on Monday, May 13, 2013 at 1:53:25 PM