Thursday, 3 July 2014

Any colour you like, so long as it's black

Since contagion from our sick financial system caused a global pandemic, people have been looking for a cure. A lot of hopes were pinned on an alleged wonder drug called Austerity. Thanks to a series of controversial trials, in which millions of human guinea pigs were forcibly injected with massive doses of Austerity (Zuckerberg, Sandberg, when it comes to carrying out unethical experiments on unwilling patients, you're just a pair of big squeamish wimps compared to the Euro Troika), we do have some data on how well this panacea works:
It was nearly four years ago that the Greek government negotiated its agreement with the IMF for a harsh austerity programme that was ostensibly designed to resolve its budget problems. Many economists, when we saw the plan, knew immediately that Greece was beginning a long journey into darkness that would last for many years. This was not because the Greek government had lived beyond its means or lied about its fiscal deficit. These things could have been corrected without going through six or more years of recession. It was because of the "solution" itself...

...The IMF is the subordinate partner in the "troika" (including the European Central Bank and the European commission) that has been calling the shots for the Greek economy these past four years, but it is the one in charge of putting numbers on the page. It repeatedly projected economic recoveries for 2011, 2012, and 2013 that did not materialise.

Now the IMF is projecting economic growth for 2014. But this time they are probably, finally, going to be right. It is vitally important that we understand why.

Last month the Greek parliament approved a stimulus programme...

...This stimulus will likely make the difference between growth and another year of recession. Most of the financing comes from EU grants, so it does not add to Greece's debt.
In other words, the Greek economy is going to grow this year because of a significant policy reversal. The austerity, or fiscal tightening, is basically coming to an end.

Why is this so important? Because the people who designed or supported the policy of the last four years will, when the Greek economy begins to recover, claim that the "austerity worked". But even the IMF's own analysis of the Greek economy refutes this claim.
Mark Weisbrot, writing in the Graun, earlier this year. The effects of full-strength Austerity look far worse than a placebo. Closer to home, the dosage has been lower and the results less clear cut, with some attributing 3 percentage points lost from GDP to austerian policies and others attributing our dead cat bounce of a recovery to the fact that the austerians were actually too frit to subject experimental subjects to a significant dose of the alleged wonder drug:
The bottom line is that there has been a lot less austerity than we might have been led to believe, and austerity is unlikely to have been responsible for the first signs of recovery we see now. Arguably the fact that government spending was not cut as aggressively as some would have liked has actually allowed the recovery to begin.
It looks as if full-strength Austerity is a toxic cocktail that nearly kills the patient and the efficacy of lower doses is still the subject of a lively debate, although worrying side-effects have been recorded. There's room for nuance and interpretation of the results, but the treatment, remains controversial, to say the least.

Except that somewhere along the line, all the important people agreed that, never mind the drug trials, Austerity pills are perfectly safe and, so long as the patients think they're doing them good then, general practitioners should be handing them out like Smarties, or antibiotics:
For better or worse, the anti-austerity argument was lost back in 2010. Since late 2013 a majority of people have also told pollsters that austerity is actually good for the economy: 42 per cent now say cuts are good for the economy while 37 per cent say they are bad...
...There is no longer a mainstream anti-austerity narrative. The Tories and the Lib Dems are making cuts, Labour are going to make cuts and no one who isn’t is going to get anywhere near power anytime soon. As far as the media is concerned the debate is over.
James Bloodworth, writing for Left Foot Forward ("Evidence-based political blogging").

In other words, come election day, you could either do a Russell Brand, stay at home and end up being given more of the same, or you could go to the polls and vote for more of the same (who says there's no choice when today's consumers can choose their austerity in either blue, red or yellow?).

For better or worse, this sort of 'realism' looks like a good way of losing the anti-apathy argument and leaving the political stage clear for distracting pseudo events like Cammo the Clown taking a tumble over a banana skin, falling flat on his face, then picking himself up with the words 'I meant to do that!'