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OpEdNews Op Eds    H3'ed 4/13/13

The New York Times Thinks Bleeding Cyprus Is 'Strong Medicine'

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Message William K. Black, J.D., Ph.D.
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I'm announcing the New York Times award for incompetence in macroeconomic reporting (IMR, pronounced like "screamer"). I suggest that the paper offer as a prize to awardees a two hour lunch with Krugman in which Krugman provides a remedial economics lecture. My premise is that it is impossible to be a NYT reporter and fail to know that the paper has a Nobel Laureate in economics who writes a regular column for the paper and frequently discusses making economic downturns worse by inflicting self-destructive austerity. Even the most casual reader of Paul Krugman's columns would know that opposition to austerity has long been the dominant view among economists and that over the last five years events here and in Europe have again confirmed that view.

I do not, of course, insist that any NYT reporter agree with Krugman and the dominant view of economists. The dominant view of economists and finance scholars on a wide range of issues has proved disastrously wrong. The views of austerians, however, have proven consistently wrong. Their predictions have routinely failed by massive margins. They are ideologues whose real goal is to dramatically reduce governmental spending on some of the most popular and beneficial programs, particularly the safety net.

What I do expect out of NYT reporters is critical thinking and refusing to accept as a purported "fact" that austerity in response to a Great Recession is a rational policy. They should certainly not present such an assertion as a fact. If they wish to argue in favor of austerity they should alert their readers that it is a minority view among economists and admit that its proponents have consistently been proven wrong - and then argue why they believe this time will be different.

(Importantly, the predictive track record of economists and finance experts who held the dominant view that markets were so "efficient" that material "accounting control fraud" and hyper-inflated bubbles were impossible had a terrible predictive record over the last quarter-century before this crisis. White-collar criminologists had a far superior predictive and explanatory record about control fraud and hyper-inflated bubbles.)

What we get out of NYT reporters - as a typical practice - in reporting on Eurozone austerity is the opposite approach. They may acknowledge that austerity has proven self-destructive - but they normally do so in an overall presentation that implicitly asserts that austerity must be desirable because it is so harmful. This passes for logic among theoclassical economists. The usual austerity metaphor is to "medicine." Medicine may taste terrible and cause one brief pain, but only the most childish would fail to take their medicine because it briefly makes our lips curl in distaste.

The economic truth, however, proved repeatedly during this crisis, is that austerity is to "medicine" as bleeding a patient was to "health care." It violates the Hippocratic Oath's central precept that the physician must "do no harm." The bubbles cracked in 2006, and the Eurozone has been inflicting austerity on its population for over five years. No one serious, and honest, in their reporting can use the medicine metaphor.

As I explained in a recent article, austerity has inflicted a gratuitous second recession on the Eurozone in general - and the periphery is the epicenter of an uber-Depression in which unemployment rates are far higher than the largest European economies suffered during the Great Depression. Indeed, unemployment in France and the U.K. today is broadly comparable to the average unemployment level these nations suffered from 1930-1938. Austerity is the most self-destructive economic policy since the Great Depression and it is causing immense suffering and waste.

My first nominee for the IMR award is an article by James Kanter dated April 3, 2013 and entitled "I.M.F. and Europe Set Tough Terms for Cyprus Bailout."

The article begins by using IMF code for austerity.

"This is a challenging program that will require great efforts from the Cypriot population," Christine Lagarde , the managing director of the I.M.F., said in a statement issued by the fund, which is based in Washington.

It is worth making special note that Kanter's article about the imposition of austerity never uses the word "austerity" - repeatedly substituting euphemisms ("great efforts") for a word that is justly reviled by hundreds of millions of citizens of the Eurozone. The reporter's refusal to call austerity "austerity" is a "tell."

A reader of Krugman's columns (or our columns or the columns of any decent blog site that discusses macroeconomics) would know that recent IMF studies have confirmed the harm produced by austerity and the greater than anticipated (by the IMF) benefits of fiscal stimulus as a response to the Great Recession. But a reader of Kanter's column would learn none of these critical facts. Instead, they would get another dose of the "medicine" metaphor.

Though it has not yet been made public, officials say the agreement includes budget cuts, the privatization of state-owned assets and other conditions Cyprus must meet.

It was another dose of strong medicine for Cyprus, which agreed last month to restructure an outsize banking sector by forcing huge losses on bondholders and big depositors in the country's two biggest lenders.

The first paragraph describes, but refuses to name, the infliction of austerity and the second paragraph says this represents more "strong medicine." These passages foreshadow the single most bizarre aspect of the IMR article - the author reports that his latest euphemism for austerity ("the deal") will harm Cyprus' economy and people.

Before the deal, the Cypriot economy was expected to shrink 3.5 percent this year, with unemployment hitting nearly 14 percent. Now, under the strict bailout measures, some experts predicted the economy could contract 5 percent or more, sending unemployment even higher.

Exactly, when one is anemic we bleed you. It makes you even sicker, but theoclassical economics has only one patent "medicine" that it markets as a cure-all for every problem - crush government spending, particularly those programs that work, and make crony capitalists wealthy by selling national assets to them at fire sale prices.

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William K Black , J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House (more...)
 
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