Why Austerity was Doomed from the Start
by Steve Keen, Steve Keen’s Debtwatch
I’ve spent the past two weeks in Europe, with speaking engagements in Italy, Greece and Austria. This was my first visit to Greece, and my first chance to get an admittedly superficial tourist’s view of what a country with Great Depression levels of unemployment looks like.
It didn’t look like anything in particular until the drive from Athens, Greece’s capital and largest city, to Thessaloniki, its second largest. Then it struck me: the roads were near empty – as the toll booth shown in Figure 1 illustrates. My host Nikos reckons he has done a million kilometers over the years on this 500km drive, and he confirmed that roads which were now virtually empty were once full of cars, and especially trucks — that mobile sign of a thriving economy.
Figure 1: A toll booth on Greece’s main highway at about 5pm: no vehicles in either direction
This is a very different manifestation of economic stagnation than the mental picture I had of it from the historical record of the Great Depression, when the overwhelming impression was of crowds: crowds lined up at soup kitchens, crowds outside dole offices. Today, the 28 per cent of Greek’s workforce that is unemployed is mainly at home (if they have homes), and surviving on electronically transmitted dole payments. The social organisation of the unemployed that marked the Great Depression is not apparent today — though the political shifts are beginning.
Parties of both the Left and the Right that are opposed to EU austerity policies made dramatic gains in the recent European elections, and in Greece, if an election were held this week, the mainstream parties that are identified with the Troika’s austerity program would be thrown out of office. Despite this, the EU bureaucrats who have crafted the “Stability and Growth Pact†and its “reduce public debt at all costs†program are digging in, insisting that this is the only way for Europe to overcome its economic malaise.
The narrative is that irresponsible government spending led to the crisis, and “fiscal consolidation†— a drastic reduction in the level of public debt thanks to years of budget surpluses — can end it. Greece in particular has been told to run budget surpluses of 4.5 per cent of GDP for the next decade or so, and to have a long-term target of a 4 per cent surplus every year. And Greece has no choice but to shoot for this target, since its budget must be approved by the EU.
