Monday, January 2, 2012

Will 2012 See the End of Austerity Politics?

This is the key economic question for the new year. Especially now as jobs appear to be making a modest comeback with 170,000 added in November, according to BLS stats (though again, this is barely 20,000 above population replacement levels). Also, as Paul Krugman observed in his most recent piece ('The Triumph of Keynesian Economics') the correct economic dictum as uttered first by British economist John Maynard Keynes, is that you always apply measures of austerity during booms, and apply economic stimulus packages during slumps.

This has been borne out time after time. For example, FDR could have had the nation out of the Great Depression much earlier, but he succumbed to the rhetoric of the austerity hawks in his party and began putting in place austerity measures in 1937. Bad idea! It extended the depression's effects at least five more years - until war production (which provided a massive stimulus) finally did the trick.

The situation in this country was approaching another Great Depression in early 2009, when Obama and the Dems put through a stimulus bill that in all probability rescued us from the worst (which is why Mitch Romney's recent comment that Obama's reiteration of this amounted to an equivalent statement to "Let them eat cake!" disqualifies him as any serious candidate). However, it wasn't large enough to get the country fully back on track. Basically, that $897b stimulus was top heavy with unproductive tax cuts (one third of the package) when it ought to have been more food stamps and unemployment benefits. Tax cuts don't work to pump up an economy in doldrums, the other two do!

Only in retrospect - from the data released in 2010 (with the much lower GDP over the years 2008, -09 available), could it be seen that Obama's initial package was inadequate. Had he gone full tilt Keynesian, and doubled that package to $1.6 trillion with almost NO tax cuts (only 10% if that) we'd now be seeing less than 7% unemployment. Had the Bush tax cuts also been allowed to expire, the production process would have been such that the unemployment might have gone below 7% or even 6.5%. The reason is that moderately higher taxes spur higher productive capacity and employment, contrary to austerity thinking.

In fact, if anyone had seriously read The Financial Times report (9/15/11) on the Bush tax cuts, they'd have seen they are not at all a stimulus device but a hidden austerity device! The reason is that tax cuts deprive government of needed revenue at the point of support for its basic spending programs as well as other that would provide an additional stimulus. Because tax cuts limit government's coffers, and "starve the beast" - in the parlance of the tax cut cult- then their effects translate into other social -public spending areas such as Social Security and Medicare, driving cuts to those. But when those cuts are made, the people affected halt spending and an austerity dynamic becomes entrenched.

The Financial Times analysis of the Bush tax cuts bluntly noted:

"The 2000s- that is the period immediately following the Bush tax cuts – were the weakest decade in U.S. postwar history for real, non-residential capital investment. Not only were the 2000s by far the weakest period but the tax cuts did not even curtail the secular slowdown in the growth of business structures. Rather the slowdown accelerated to a full decline

Once it is recognized and understood that any tax cuts (including the payroll tax cuts) are de-stimulative then it also is possible for people to grasp that extending them means extending an austerity dynamic inimical to escaping a prolonged economic slump. In other words, we've continued to be in this slump not only because of inadequate stimulus packages (in both frequency and magnitude) but also the lack of marginally higher tax rates! The original backers of the Bush tax cuts in 2001 understood this, which was why they had a built in sunset date for early 2011. They knew the nation could ill afford to keep them!

It follows from this, that the extension of any tax cuts will mean an extension of austerity. It will translate into continued demands for massive cuts to "entitlements" because the money will no longer be there (according to the austerity groupies) to pay for the "entitlements" and hence they will be causing massive "deficits".

So what gives? Clearly it serves the stealth interests of the elitist, Neoliberal capitalist Overclass to ram austerity down the throats of the people to divest them of ever more benefits and support, to thereby render their existence marginal unless they're working 24/7. If so working, then they can't meddle in or track political issues or events, and hence become ever more the expendable serfs of the same Overclass. Again, this harkens back to the Theory of the Elites, e.g.

History also helps for us to gain a critical perspective so we don't end up down the same path as the German Weimar Republic. Some key insights are derived by examining the events following March 30, 1930 and concerning then Chancellor Heinrich Brüning. This is based on a recounting in Ian Kershaw's excellent monograph, Hitler Hubris(1889-1936), which documents the history leading up to 1936 and Hitler's seizure of power-consolidation of the Nazi state.

First some background. Brüning was an austerity maven and learned this fell philosophy as a doctoral student at The London School of Economics - where it was promoted by "free-market Austrian school" whores like Friedrich von Hayek (one of the heroes of the modern Libertarian Right, and their Ayn Randian nattering nabobs).

As Kershaw notes (p. 324):

"By June (1930), Brüning was running into serious difficulties in his attempts to reduce public spending through emergency decrees"

Note here that under existing German laws for the Weimar Republic, if no majority could be achieved for financial reform in the Reichstag (which was the case ca. March, 1930), the Chancellor had the option of issuing an "emergency decree" and attempting to obtain a majority for that. If such presidential decrees even failed to gain a majority, then - under Article 48 - the President could dissolve the Reichstag (which necessitated new elections within 60 days)

Unfortunately for Brüning, on July 16, 1930 his financial reform bill aimed at a (deflationary) policy of massive public spending cuts was rejected by the Reichstag. He then resorted to an emergency decree to make the bill law, but when this was rejected by a majority- so he resorted to dissolution of Parliament by July 18, 1930.The dissolution provided the opening gambit for Hitler and his brown shirts, who beat up socialist and workers, trade union members to the delight of big Business.

Hitler totally exploited the weaknesses of the Weimar system, calling down his wrath on its failed promises of tax reduction, flawed financial management and failure to trim unemployment. In vague terms, and with the massive austerity still threatening terrified Germans, Hitler promised security - financial and personal- with the central idea of "national liberation through stength and unity".

The result of the election was a resounding success for Hitler and the Nazis with nearly two-fifths of all votes coming from the German middle classes (Kershaw, p. 334). The major paper, The Frankfurter Zeitung, called it the "bitterness election" and cast the middle classes as villains for being motivated by the desire to 'overturn the current political system'."

Not long after, Weimar austerity did strike as the World War I allies called in their war debts and credits and Brüning got the Reichstag to go along with huge spending cuts . After just two years of “austerity” measures, Germany’s economy had completely collapsed: unemployment doubled from 15 percent in 1930 to 30 percent in 1932, protests spread, and Brüning was finally forced out. After just two years of austerity, Germans were willing to be ruled by anyone or anything except for the kinds of democratic politicians that administered their “austerity” pain.

In Germany's 1932 elections, the Nazis and the Communists came out on top, and by early 1933, with Hitler solely in charge, Germany’s fledgling democracy was shut down for good.In the wake of this,von Hayek and fellow Austrian aristocrats were forced to flee from the fruits of their economic programs, then did a complete revision of history.

Once safely ensconced in England and America, funded by oligarch grants, von Mises and von Hayek pushed a revisionist history of the collapse of Weimar Germany. Rather than blaming their own deflationary austerity measures, they tagged "big-spending liberals" who were allegedly in charge of Germany’s last government.The Nazi Propaganda Minister Josef Goebbels, not willing to let a good piece of bullshit go to waste, incorporated this into propaganda posters for the elections of 1932 and 1933 (see attached), incredibly depicting Marxism (conflated with liberals) as being the "guardian angels of capitalists"! (This, at the exact same time big business was applauding the Nazi SA street thugs thumping and killing Marxists, communists and any ordinary workers demanding more assistance!)

Will history repeat this year, with the 2012 elections a rehashing of those in 1932 Germany?

We had all better hope not, and that means putting the austerity demons in our own country to rest and to shame by voting them out in the coming elections - mainly the Tea baggers ensconced in the House of Representatives. The same bunch who have nearly driven the nation off the cliff with their "showdown" over the debt ceiling increase last August.

Those who forget the past are doomed to repeat it!

No comments: