Austerity and social unrest… August 14, 2012Posted by WorldbyStorm in Economy, European Politics.
There’s a good leader from the Observer Business section from a week or two back to be found here. As it notes ‘five years ago was bad; today it’s worse. How long will we feel the pain of the credit crunch?’ and that is for the UK, so let’s pause only to consider our own plight before moving on.
Actually we don’t have to, the Observer does it for us, noting that:
“After five years, we are in a worse place than when we started,” wrote Jamil Baz, chief investment strategist at hedge fund GLG, in an eye-catching analysis last month. He observed that total debt – meaning government, household, financial and corporate debt – is higher than in 2007 in 11 economies under the microscope. They are Canada, Germany, Greece, France, Ireland, Italy, Japan, Spain, Portugal, the UK and the US.
And it quotes Baz making five predictions as follows, cheerful guy that he is:
First, “all the perceived unpleasantness of the past few years is merely a warm-up act for the greater crisis to come”, because the need to get debt levels down remains. Second, history says debt cannot be reduced by more than 10 percentage points a year without causing social unrest, which suggests a minimum of 15 to 20 years to achieve healthy conditions for growth.
Third, the economic impact of cutting debt will be massive because a multiplier effect occurs when spending is reduced. Fourth, share prices may still be too high because corporate profits will be hit. Fifth, there is no magic bullet. Interest rates are already on the floor and even back-door inflation would not help because bond yields would soar and, in any case, many government liabilities are inflation-linked.
Now think about that for a moment – not the austerity without end bit because that we know, but the 10 percentage points a year reduction of debt limit ratio to social unrest, because it’s a most interesting assertion. It would be useful to find some evidence for same, though it is obvious that there are limits to debt reduction in a democratic polity (and there’s an interesting, some would say appalling, example of Romania during the 1980s debt reduction policies exacerbated an already far from optimal situation). But then consider the austerity without end bit and wonder at whether advanced capitalist democratic polities can survive that across decades. That’s not an experiment I’d want to subject any citizenry too, whatever my political position.
In a way that’s one of the genuine oddities of the contemporary period, that however egregious the measures, however much they impact negatively upon populations, the baleful consequence of them seems to be hardly an issue for those proposing and implementing them – bar the usual ineffective and rhetorical handwringing.
The Observer concludes:
The ECB, under Mario Draghi’s leadership, is regarded as more activist than in the old days, but the central conundrum of how to achieve growth while imposing austerity remains unsolved.
It sure does, not least because there’s a growing consensus amongst economists and others that it is simply impossible. Indeed as an aside it’s curious that the leader writer – given what they’ve referenced previously – seems to think that the question is even slightly open on the issue.
All in all just about as gloomy as could be imagined.