Austerity

After all the pains we have suffered we’re still talking about it. Do you really think Greek problems are solved with the last bailout? Wait and see.

Wouldn’t it be convenient blaming global slowdown as a primary cause for weak business investments in Europe?

It seems to me worth pointing out that a real recovery never took place so far, anyway. Weak demand leads to lower investments and a depressed economy crowds investments in, not out.

Meaning: austerity policies don’t release resources for private investments, they reduce future capacity adding even more pain in the present.

If potential growth is slowing there are persistent difficulties in achieving more employment and getting the private sector to spend gets harder: it’s a vicious circle.

Of course in the long run things will always pick up (the trend is never constantly negative), but certainly NOT as a result of austerity imposed to us all.

Nevertheless, this is “merely” a European problem… Isn’t it?

I already said in a previous post that austerity is wrong: at the very beginning, after 2008 they all did the “right” thing at the “right” time supporting the wrecked financial system. Please note the quotation marks. What happened then? The governments began to worry about deficits: saving the financial systems costed. A lot. Who was going to pay?

Guess. Who is usually paying? At the very end? And in the end?

The magic word in 2010 suddenly became: austerity. I always say that I’m a nescient, because it’s true. But you don’t have to be an expert to see that cutting spending in a depressed economy would further deepen the depression. And so it did. Austerity imposed job losses and crippled long-run growth: the future prospects are strongly correlated with the amount of austerity imposed.

Governments that slashed spending in the face of depression hurted their economies and therefore their future tax revenues.

Just because they’re “experts”: all the above was widely predicted by a smaller majority of TRUE experts.

There’s another aspect: it’s easy to call for sacrifices when they’re asked to normal people who are going to pay the final price even after losing their jobs (paradoxically) in the name of long-run responsibility. Irony is always bitter.

ONE thing I cannot accept: they don’t admit being wrong. Insult to injury.

In my view governments are going to pay a very bitter price for this, wherefore austerity is fanning populism: this is a very dangerous game, way beyond fiscal measures and highly (only) presumed benefits. Possibly headed to an almost total political paralysis. I might be too harsh, but it already happened in Warsaw, Athens, Lisbon and Madrid. When are we going to learn? Is this the Europe we want?

….Always humble,

Angiolino