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In this crisis there’s only one right answer… even if it’s the wrong one. February 26, 2013

Posted by WorldbyStorm in Economy, European Politics, Irish Politics.

I’d wondered in a vague sort of a way what the response to IMF studies demonstrating that austerity wasn’t reducing debt burdens would be from the ECB et al. We know that in this state the rationale for continuing is that there is no alternative, that Ireland is uniquely unable to – for example – raise taxation further because we’re a ‘small open economy’ etc, etc (indeed Brian Hayes was making precisely that case at the weekend in the SBP). Whether one finds that entirely convincing is a different matter – not least because while income tax remains at given levels all other taxes and charges increase. And it is simply insufficient in terms of explaining what credible path to growth exists. But what of other larger states whose room might be, theoretically, greater?

Reading Paul Krugman in the Irish Times though, there is an answer to the question as to a response to IMF studies. He writes:

Given all of this, one might have expected some reconsideration and soul-searching on the part of European officials, some hints of flexibility.

One might indeed.

Instead, however, top officials have become even more insistent that austerity is the one true path.

He continues:

Thus in January 2011, Olli Rehn, a vice-president of the European Commission, praised the austerity programmes of Greece, Spain and Portugal and predicted that the Greek programme would yield “lasting returns”.
Since then unemployment has soared in all three countries – but sure enough, in December 2012, Rehn published an op-ed article with the headline “Europe must stay the austerity course”.

And most crucially…

Oh, and Rehn’s response to studies showing the adverse effects of austerity are much bigger than expected was to send a letter to finance ministers and the IMF declaring that such studies were threatening to erode confidence. Which brings me back to Italy, a nation that for all its dysfunction has in fact dutifully imposed substantial austerity – and seen its economy shrink rapidly as a result.

This is surely the precise definition of adherence to ideology in the face of conclusive theoretical and practical evidence that that ideology is incorrect. It moves the economic policy response to a matter of faith. Now that may be fine for some, but my tolerance for faith based approaches of whatever stripe is very limited indeed. And particularly when they are responsible for the obvious negative outcomes that we see around us in this state and further afield.
Krugman points to a political outcome to economic policies:

Italy isn’t unique: disreputable politicians are on the rise all across southern Europe. And the reason this is happening is that respectable Europeans won’t admit that the policies they have imposed on debtors are a disastrous failure.

Certainly the response in the media is fascinating to the election this week in Italy. Put aside for a moment the point that Berlusconi,’s political longevity is something of a miracle – and I imagine a deeply unwanted one for most of us.

The line has been that only certain options are viable. Berlusconi not being one of them, Monti being acceptable and the left having question marks over it.

It has interesting ramifications too. If Berlusconi can be returned then what of others, say in Ireland. And what of the choices that remain in Italy and beyond?


1. Ed - February 26, 2013

“But remember, Italy isn’t unique: disreputable politicians are on the rise all across southern Europe.”

And that’s where Krugman’s own limitations kick in. In the sentence before that, he refers to Berlusconi and Beppe Grillo as examples of ‘disreputable politicians’. Now Silvio is certainly disreputable, but Grillo? I don’t know that much about him, and I very much doubt if his party is going to be able to challenge Rehn and co effectively in the long run. But he’s hardly any more disreputable than the unelected Goldman Sachs boot-boy Mario Monti.

And ‘all across southern Europe’? Golden Dawn unfortunately are on the rise, but they’re still well behind SYRIZA, which unlike the coalition parties in Athens, has not made torture of immigrants official policy and threatened to imprison strikers. In Spain, so far as I’m aware, the main party which has been on the rise since the last election is the United Left, which again is far more ‘reputable’ than either the conservatives or the PSOE, and doesn’t have a record of corruption or of threatening to ban photographs of police brutality.

This may seem like a lot to be reading into one sentence, but Krugman had a column not so long ago talking about Greece and equating Golden Dawn and SYRIZA. It’s the same old baloney, ‘extremes of left and right’, and it’s depressing to see him trotting it out. If he wants to see the austerians stopped in Europe, disreputable politicians and disreputable parties are the only ones who can make it happen.


WorldbyStorm - February 26, 2013

That’s a very fair point Ed. K is too broad brush in his analysis in that respect, though I presume he’s egging the pudding in order to reinforce the idea that the orthodoxy is getting it completely wrong. But then again, he’s an US progressive of sorts so perhaps it’s a case of amazing he’s got it even half right.


Gewerkschaftler - February 27, 2013

+1 on the need for a party of the direputable. Repute is manufactured through hegemony. It’s the “serious” people who are pushing our faces in the mud.

Nice to see the ‘faith-based economics’ meme getting an airing WBS.

Krugman is shackled by much of the standard neo-classical intellectual baggage. For instance he is among those who use models in which debt is considered irrelevant. But he’s as close to a dissenting voice as the NYT is ever likely to get.


hardcore for nerds - February 27, 2013

“disreputable” is presumably at least in part an ironic contrast with the “respectable Europeans”, a description hardly to be taken at face value.

equally, one might well describe both FF and SF as “disreputable” in this sense of being far from entirely trustworthy in the attitudes.

bigger question is, where’s the further left in the Italian elections? I assume Sinistra Ecologica Liberta is a red/green affair, but they haven’t made much of a mark, and the 5SM seems rather apolitical (‘libertarian’ I saw in one description). it’s hard to imagine the latter emerging in the same way in Irish politics – we tear down all our comedians quicker even than politicians – but I suppose that could be where the Independent vote is heading (Ming, Wallace, etc.?)


LeftAtTheCross - February 27, 2013

Rifondazione Comunista and the Partito dei Comunisti Italiani are amongst the participants in the list of Rivoluzione Civile Ingroia, which received 2.25% in the vote for the lower chamber, 1.8% of the vote for the senate. Not a great result.


2. Joe - February 27, 2013

Is Ollie Rehn an actual person? I heard “him” interviewed on the radio the other morning and he sounded like a robot. A Dalek. “Austerity-eh, must-eh be obeyed-eh.”


Gewerkschaftler - February 27, 2013

It’s quite possible that if we took the lids off our masters we would reveal tentacled paranoid aliens. They certainly have an erm. “skewed” relationship with the world where most of us live.


Ed - February 27, 2013

Before he became the EU’s finance dalek, this was the first time I ever heard Rehn mentioned, in hindsight it was a pretty good introduction to what was to come:

“Widely regarded inside Turkey as an honorary consul for the AKP, Rehn is perhaps exceptional even in the ranks of the current Commission for vulgar self-satisfaction and Tartufferie. His mission statement, Europe’s Next Frontiers (2006), replete with epigraphs from pop songs, and apothegms like ‘defeatism never carries the day’ or ‘the vision thing is not rocket science,’ ends with a naff conceit of his prowess on the football field: ‘Don’t tell the goalie, but I tend to shoot my penalty kicks to the lower left-hand corner. After all, it is goals that count – even in European integration.’ ”



3. King Alpha Plan - February 27, 2013

Clearly a knob jockey


CMK - February 27, 2013

A you insinuating what I think you’re insinuating? Hopefully, that’s the last we hear from you.


WorldbyStorm - February 27, 2013

Yeah, entirely agree CMK.


4. CL - February 27, 2013

Rehn,-a neoliberal, technocratic true believer.

The IMF has reason to be worried as more austerity seems likely in the U. S.

“The cumulative effect of these three forms of austerity has already strangled the (modest) recovery — adding the sequester, particularly given the Eurozone’s austerity-induced recession, could tip us into a gratuitous recession.”-William Black.


WorldbyStorm - February 27, 2013

It just gets worse.


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