May 22, 2012 · 1 Comments
Source: New Economic Perspectives
By William K. Black:
The New York Times’ reporters covering Europe’s financial, social, and political crises continue to channel Berlin and demonstrate an ignorance of economics so profound that it rivals the Wall Street Journal’s editorial writers and columnists. On May 18, 2012 the NYT published “Rising Greek Political Star, Foe of Austerity, Puts Europe on Edge.” The problem begins with the title. It is austerity that has put Europe over the edge. The Greek leader the article discusses is one of the best hopes from pulling Europe back from self-inflicted disaster. Most of the euro zone has been thrown into a gratuitous recession and the periphery has been cast into Great Depression levels of unemployment. The title reverses the analytics and implies that if only the peoples of the periphery would silently embrace economic catastrophe all would be well with Europe.
Economists have known for roughly 75 years that adopting austerity in response to recession or depression will make the economic crisis grow and last far longer. Austerity is to economics as bleeding was to medicine.
Germany, however, has insisted that the European Union (EU) adopt increased austerity in response to the Great Recession. It is a measure of Germany’s dominance of the EU and the collapse of democracy within the EU that Germany’s self-destructive policy demands that European leaders recently agreed to the Berlin Consensus – adopting more severe austerity even as it became indisputable that austerity was causing economic, social, and political disasters in the euro zone. The citizens of Europe, however, are increasingly rejecting austerity and the Berlin Consensus.
The NYT article focuses on Alexis Tsipras, the Greek political leader whose party rose to prominence by promising to reject the loan-for-austerity program that the disgraced former Greek government agreed to at Berlin’s diktat. The article’s theme is that Tsipras is endangering all of Europe by demanding an end to austerity being imposed on Greece. The reporters write, as if it were undisputed fact, that Tsipras has started “a high-stakes game of chicken with Europe’s leaders.” But that reverses the facts. The game that Berlin designed required the Greek to agree (1) to drive their economy off a cliff into a deepening Great Depression through increased austerity, (2) to force an enormous reduction in working class wages, (3) to sell Greek islands to private parties, and (4) to give up other aspects of sovereignty so that hostile, foreign, and private entities such as the IMF and the ECB could monitor its governmental actions. The Greeks are now refusing to commit economic, political, and social suicide. The Germans are demanding that they drive off the cliff because “a deal is a deal.”
If Greece were to drive off the cliff by adopting greater austerity it would likely destroy the EU. Austerity would force Greece into a deepening depression, eventually lead to a default on Greek sovereign debt, and tear Greece apart. Austerity has already generated a substantial neo-Nazi party in Greece. Few Americans recall the Greek civil war between the right and the left that began in World War II and continued for several years after the war or the post-war coup. Greeks recall the civil war and the coup and fear their resumption. Proponents of the Berlin Consensus already have blood on their hands because of the suicides engendered by mass unemployment, small business failures, and hopelessness. If the Berlin Consensus sparks a civil war or coup it could be fatal to the EU.
I have explained in prior articles while similar demands for austerity from the IMF pursuant to “the Washington Consensus” enraged the peoples of Latin America and caused them to elect leaders who resist austerity, privatization, and the assault on working class wages. The Berlin Consensus has had a more inconsistent result because the governments of the periphery that imposed austerity have often been led by parties of the left. European voters have rejected whatever party imposed austerity. The incoherent result in Spain and Portugal is that rightist parties devoted to even greater austerity have taken power and have pushed their nations into even more severe economic crises.
Tsipras represents the new face of the left in Europe that is following policies more similar to the Latin American leaders who were elected because they promised to reject austerity and the Washington Consensus. Right-wing leaders throughout Europe are terrified by Tsipras because they recognize that his promise to reject austerity could serve as the model to successful challengers from the left in their nations. The European right is determined to discredit Tsipras by painting him as irresponsible and menacing. The NYT’s reporters covering the euro zone crisis became cheerleaders for the Berlin Consensus and have not wavered no matter how many times economists (including the NYT’s Nobel Laureate, Paul Krugman) explain its insanity, despite witnessing the renewed recession and Great Depressions of the periphery proving the economists’ predictions of the harm of austerity correct, and despite the increasing refusal of Europeans to have their economies bled repeatedly by ultra-right wing IMF and ECB bank quacks.
The NYT’s journalists writing about the European crises do not simply fail to mention that there is an overwhelming consensus among economists that Berlin’s insistence on austerity is destructive. Their articles typically fail even the most minimal standards of journalism because they state as if they were undisputed facts pro-austerity dogmas that (1) have no coherent underlying economic theory, (2) are contrary to the economic consensus, (3) have a historical track record of failure, and (4) have (again) failed in Europe.
Consider this passage: “[Tsipras] said he would not veer from pledges to repudiate terms of Greece’s bailout that forced wrenching hardship on average Greeks, a stance that may lead Greece’s lenders to withhold further aid and set off a default.” Who are “Greece’s lenders?” The EU, the ECB and the IMF (collectively, the troika) are Greece’s preeminent lenders. Why would the troika, in the midst of a Great Depression in Greece, impose austerity measures “that forced wrenching hardship on average Greeks” (emphasis on the word “forced”)? Forcing wrenching hardships on average Greeks during a Great Depression is not simply economically suicidal – it is a morally depraved action against fellow citizens of the “ever greater union” of Europe. Why would the troika “withhold further aid and set off a default” if Greece adopted rational policies that (1) stopped “forc[ing] wrenching hardship” and instead (2) improved the economy by relieving that “wrenching hardship”? Why isn’t the troika taking the lead in ending its quack remedy of bleeding the Greek economy? The journalists write as if Tsipras needs to explain his (apparently bizarre) refusal to “veer from pledges” to repudiate the Greek suicide pact that Berlin’s diktats coerced the disgraced, fallen government of Greece to accede to. Why don’t the reporters demand that the troika explain its refusal to “veer” from its quack demands to repeatedly bleed the Greek economy that are “forc[ing] wrenching hardship on average Greeks” even after the bleeding (again) proves self-destructive?
Instead of ever acknowledging that austerity is the problem rather than the solution, the article’s meme is “brinksmanship.” The article implicitly reveals that Berlin doesn’t care about Greece or how much Berlin’s policies harm the Greeks. Instead, Berlin allowed limited loans to Greece “because of fears that an exit [from the euro by Greece] would carry too high a cost, from bank collapses across Europe to destabilization of the global financial system.” I put aside for a future column the incredible analytical importance of Berlin’s fears – which the reporters ignore. Greece is a relatively small economy and most of its remaining debts are owed to the troika. The Greek sovereign debt is large relative to the Greek economy because it lacks a sovereign currency. That lack renders all euro members vulnerable to attacks from the bond vigilantes. Greece’s sovereign debt, however, is tiny relative to the size of the euro zone and European banks should have minimal continuing exposure to the debt. A Greek exit from the euro, therefore, should cause a moderate loss to the ECB, the EU, and the IMF, but minimal direct losses to banks. The passage reveals Berlin’s (and Washington D.C.’s) real fears – massive unrecognized losses at the world’s largest banks that have been hidden by accounting games. Spain, Portugal, Italy, and Ireland are beset by massive unrecognized losses that would render many of their banks and many foreign banks insolvent or capital-impaired. Berlin’s real fear is that the bond vigilantes will turn their sights on these larger nations if Greece defaults and leaves the euro. One prays that the NYT journalists would understand the implications of Berlin’s fears about Greece the next time a European banker, political leader, or regulator blows smoke about how well capitalized the banks are.
The implication that the reporters present to the readers is that Berlin’s forcing “wrenching hardship” on “average Greeks” must be good for Greeks – otherwise Berlin’s actions are inexplicable (or as I explained immediately above, all too easy to understand because they are designed to enrich the officers that control the big banks at the expense of the Greek people). The journalists appear to buy into the Berlin meme that the Greeks are too unintelligent and self-indulgent to suffer stoically the “wrenching hardship” essential to the recovery of the Greek economy. This is the “cod liver oil” theory of austerity that Berlin peddles relentlessly. Causing (1) mass unemployment, (2) the failure of tens of thousands of businesses, (3) a generation of Greek university graduates to emigrate, and (4) enormous cuts in working class wages crushes, not aids economic recovery. The Berlin Consensus’ insistence on forcing austerity on Greece has caused a suicidal death spiral of the economy, led to extraordinary inequality, torn apart the social fabric, spurred political extremism and discord, and set the stage for a civil war, coup, and revolution. Austerity isn’t cod liver oil, it is Berlin’s belladonna.
An equally bizarre aspect of the article is that while the reporters (implicitly and weakly) concede that the G-8 pushed Berlin to stop imposing suicidal austerity demands on Europe, the reporters gave that fact only glancing attention. One might have hoped that this would prompt the reporters to explain the fact that there is a strong economic consensus that austerity is a self-destructive means of responding to a recession and explain why that strong consensus exists. For bonus points, the reporters might have explained that the Austrian-school economists who propound the pro-austerity dogma also pushed the anti-regulatory policies that create the criminogenic environments that drive our recurrent, intensifying financial crises, that they have a fierce hate for all things governmental, and that they have been proven constantly wrong in their claims that the U.S., England, and Japan are minutes away from hyper-inflation. In sum, they have proven wrong about the most important issues and our leading contributors to our crises.
The closest the reporters could bring themselves to mentioning this economic consensus against austerity (and it is none too close an approach) is this sentence: “As growth has slowed, an anti-austerity backlash has swept Europe, forcing Ms. Merkel to soften her stance.” Please note the total lack of discussion of causality. The fact that austerity led (again) to a more severe economic crisis is ignored. Notice also the dramatic understatement of the facts. Growth has not “slowed” in most of the euro zone. Most euro zone nations have fallen back into recession and several nations of the periphery are suffering Great Depression levels of unemployment exacerbated by austerity.
The NYT bears grave culpability for the unprofessional aid and comfort that its key reporter provided to help the chickenhawks launch the second war with Iraq. There was at least the pretense of data supporting the continued existence of WMD in Iraq. Iraq had used WMD in the past against its citizens. There is not even the pretense of facts supporting the meme that Berlin’s demand to “force” “wrenching hardship” on the average European citizen of the periphery will help the average citizen. There is no reason to believe it was intended to help the average citizen. The Berlin Consensus, like the Washington Consensus, is designed to impose wrenching hardship on the average citizen in order to enrich those who control the world’s largest financial institutions. The NYT urgently needs to stop helping Berlin cause “wrenching hardship” to the peoples of the European periphery.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
Follow him @williamkblack