Austerely Yours, Mitt and Angela

By Wayne M. O’Leary

Lovers of austerity heaved a huge sigh of relief in late June, when a sufficient number of Greek voters gave in to what they perceived as reality and opted to accept the European Union’s punishing financial-bailout terms. It was far from a mandate, however; Greece’s conservative, pro-EU New Democracy party, led by Antonis Samaras, barely squeaked through to a plurality win, taking 29.7% of the multi-party vote to second-place Syriza’s 26.9%.

Syriza, a leftist, anti-austerity party led by the charismatic Alexis Tsipras, doubled its vote over previous showings and promised to hold the Samaras coalition government’s feet to the fire over future bailout negotiations. New Democracy, for its part, won only by promising to renegotiate the harsh EU-IMF terms, thereby drawing the ire of Germany’s Chancellor Angela Merkel, the mother of austerity.

Mother Merkel, increasingly the Continent’s answer to Margaret Thatcher, has managed in just a few years to unravel Germany’s postwar social-democratic consensus. Since 2005, her pro-market reforms have cut wages and social benefits, weakened labor unions, raised the retirement age, and instituted mandatory balanced budgets. Income inequality has risen, but the new German model, a far different one from that created by Social Democrats Willy Brandt and Helmut Schmidt in the 1970s, has become the template for today’s cruel European austerity regime.

For the moment, despite precipitating a slide back towards recession, austerity still reigns supreme; it dominates Germany, Europe’s leading economic power, Great Britain, and most of the Euro Zone. But there are widening cracks in the Continent’s formerly solid wall of ascetic conservatism, notably in Denmark and France, where left-wing governments have lately taken control; Sweden, where the Social Democrats are making a comeback; and the Netherlands, where an austerity-minded government has been forced to resign pending new elections.

Nevertheless, austerity’s faddish persistence is testament to the fact that it’s the new thing — “new” in the sense of not having been tried since the Great Depression it exacerbated. Public memories are short, and in hard times, people vote against what they’ve most recently known, which, since World War II, has been expansive Keynesianism. Austerity’s lingering cachet also owes much to its prime sponsor, Germany, being the dominant member of the EU and (so far at least) recession-free.

Of course, Germany is so all-powerful on the European scene, due to its size, population, geography and economic culture, that it would likely thrive in any case; it did so under prewar Nazi fascism, as well as postwar democratic socialism. By contrast, weaker states with lesser resources and innate disadvantages, such as Greece, Ireland, Spain or Italy, have trouble adapting to world economic contractions and fall by the wayside when their flaws are exposed. The Germans, specifically the good conservative Germans who are calling the shots right now, believe those flaws are character-based.

Madam Merkel assumes, naturally, that the economically strong should set the agenda just as, in war, the victors write the history. A certain Germanic arrogance, much admired by American conservatives, has reared its ugly head after having been sublimated for much of the postwar period and overshadowed by the humanitarian idealism of Brandt and the stylish progressivism of Schmidt.

The gist of Merkelesque austerity is that countries need to suffer in order to develop moral character. More particularly, the profligate ordinary people of those countries (not their socioeconomic elites or entrepreneurial classes, mind you) require the whip hand, because the welfare state has spoiled them rotten; they’ve simply had it too good for too long and should be forced to do with less.

Nowhere has Merkel’s narrow-minded economic prescription for the EU gained more adherents than in American conservative circles generally and in the presidential campaign of conservatism’s 2012 standard bearer, Mitt Romney. Notwithstanding the self-evident failure of austerity to bring about broad-based recovery, which has led to a growing grassroots revolt against it throughout Europe, the lesson seems not to have penetrated the conservative mind in the US. The American Right believes this form of economic waterboarding will work because it believes in the efficacy of harsh remedies. Don’t interrupt with the facts. Just cut taxes and government spending to the bone, and wait for the inevitable good times.

They’re still waiting on the island of Puerto Rico. In 2008, voters there installed Luis Fortuno, a Romney Republican, as governor. He proceeded, the Christian Science Monitor reports, to impose classic austerity measures from the Merkel-Romney playbook: shrinking the public workforce by 17% (35,000 jobs) and abolishing innumerable government agencies, while reducing income taxes by one-third for corporations and by one-quarter for individuals.

The severe spending cuts have radically decreased Puerto Rico’s deficit, putting it on track for a balanced budget. Unfortunately, austerity hasn’t equalled prosperity, generating instead a rising EU-like unemployment rate of nearly 15%, creating a crisis in public services, and prompting massive emigration by desperate job seekers. As one Puerto Rican put it, “The middle class is left subsidizing the poor.”

This is what Mitt Romney has in store for the US mainland. His economic plan, largely formulated by unrepentant former Bush advisors Glenn Hubbard and Gregory Mankiw, offers the following European-style austerity agenda: cutting federal outlays by 10% relative to GDP, implementing the “marvelous” Ryan budget (including shifting Medicare to a voucher program and Medicaid spending to limited bloc grants), raising the eligibility age for Social Security and Medicare, and instituting a balanced federal budget. Taken as a whole, these policies would further undercut the middle class, but that’s apparently desirable.

Mr. One Percent would compound the problem by introducing a rash of uncalled for tax breaks for the rich and the corporations featuring a one-fifth reduction in the top-bracket rate from Bush’s 35% to 28%, a lowering of the corporate rate from 35 to 25 percent, and the elimination of most capital-gains and dividend taxes.

Mitt’s tax giveaways to “job creators” would, based on Europe’s and Puerto Rico’s experience, generate few jobs; they would, however (according to the Tax Policy Center and the Committee for a Responsible Federal Budget) add $500 billion to the deficit and raise the national debt by a third. It would take a lot of austerity by everyone else to dig out of that hole.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy.

From The Progressive Populist, September 1, 2012

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