What Happened To “What Works”?
by digby
So even the excuse for the Austerity Campaign is bullshit. Here’s Krugman:
Consider, if you will, the comparative cases of Ireland and Spain.
Both countries appeared, on the surface, to be fiscally responsible until the crisis hit, with balanced budgets and relatively low debt. Both discovered that this was an illusion: revenues were buoyed by immense real estate bubbles, and when the bubbles burst they plunged into deficit — and found themselves potentially on the hook for large bank losses.
The countries responded differently, however. Ireland quickly embraced harsh austerity; Spain has had to be dragged into austerity, and still faces major political unrest.
So, how’s it going? This article is typical of what you read: it describes the Irish as doing what has to be done, while the Spaniards dither. And it has good things to say about how the Irish response is working:
Much bitterness but also stoicism; markets impressed by Irish resolve to bite the austerity bullet.
Well, I guess that’s right — if by “markets impressed” you mean a CDS spread of 226 basis points, compared with 206 points for Spain; not to mention a 10-year bond rate of 5.11 percent, compared with 4.46 percent for Spain.
So, I’m glad to hear that Ireland’s stoic acceptance of austerity is reassuring markets; it must be true, because that’s what everyone says. Because if I didn’t know that, I might look at the data and conclude that markets actually have less confidence in Ireland than they do in Spain, and that austerity in the face of a deeply depressed economy doesn’t actually reassure markets at all.
But hey, what are you going to believe: what everyone knows, or your own lying eyes?
Everything’s Kabuki apparently, even this.
So, what’s really going on here? I’ve posited that it’s a Shock Doctrine move to take advantage of global economic insecurity to dismantle the welfare state. Krugman has said that he thinks part of it economists want to “appear tough.” Brad Delong thinks it might have to do with governing elites being too distant from the concerns of ordinary people. I think everyone agrees that this seems to have come up out of the blue and goes against what most experts assumed to be the accepted economic prescriptions for decades until now.
I feel as if we are watching a slow motion train wreck, mouths agape, powerless to do anything to stop it — the Very Serious People are all on board, assured in their own minds, for different reasons, that history has ended and nothing that came before can possibly be of any consequence.
In fact, I feel exactly the same way I felt in the lead up to the Iraq war.
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