If you haven’t already read it, check out Kojo Koram’s excellent piece on the mythology behind collective debt. In it, Kojo argues that the concept of debt is ruthlessly used by those in power to maintain and solidify a massively stratified social structure based on ever widening wealth inequality. Once you understand how debt is used to control people, it gets harder and harder to justify the policies being foisted upon us by our political leaders. Yet advocates of austerity continue to justify it based on math that supposedly shows cuts  = growth during a recession somewhere down the line. However, actual statistics show the inverse is true. Just take a look at these shocking charts from the National Statistics Institute displaying Spain’s unemployment figures over the past 8 years. Spain has adopted strict austerity measures year after year to avert the crisis, yet the catastrophe is compounding to the point of utter disaster (h/t the Atlantic).

The first  looks at total unemployment:

 

And the second at how long people are remaining out of work:

The purple line showing people who have been out of work for over 2 years is scary beyond belief.

If this doesn’t KO the philosophy of austerity, it’s unclear what will.

Facts can be a real encumbrance when your trying to enforce austerity on the impoverished masses. Adherents of the ‘keep-cutting-until-it-grows philosophy’ of economics suffered a blow last week as the story emerged that a famed pro-austerity publication by Harvard professors Carmen Reinhart and Kenneth Rogoff was based upon faulty spreadsheet data which had skewed its subsequent results. That such basic computing errors lay behind ideas of Reinhart and Rogoff, who the likes of Paul Ryan and U.K chancellor George Osborne had cited as providing the intellectual authority for their policies, was the equivalent of atheists finding out Christopher Hitchens had just been resurrected by the new Pope and was converting to Catholicism. To confound the pain, the flaw in the spreadsheets wasn’t discovered by a rival Keynesian economics at another Ivy League powerhouse; it was found by Thomas Herndon, a 28-year old grad student at Umass, Amherst. It is easy to see why austerity politicians want to cut funding for all academia bar elitist institutions and traditional programmes. If you let too many of these curious little people into higher education, who knows what else they might unravel?

Reinhart and Rogoff’s popular book ‘This Time Is Different’ was based on their original paper titled: ‘Growth in a Time of Debt.’ Their ideas helped provide an axis upon which the narrative of global recession was reorientated away from a tale of financial sector incompetence towards a story of collective debt. For Reinhart and Rogoff, debt was everything. Regardless of the causes of the crash, for us to recover, we had to simply focus on reducing our debt-to-G.D.P. Ratio, regardless of the externalities of human suffering. This about-turn was employed to turn public rage internally, for as London mayor Boris Johnson told constituents, ‘the time for bashing bankers had come to end.’ If people wanted someone to blame for the cuts and falling living standards then they should blame themselves: we had all lived beyond our means. A simplistic conflation of sovereign debt with household debt was repeated by politicians on both sides of the Atlantic: i.e “think about it like a mum saving on her weekly shopping.” Of course economies don’t work anything like households but that was beside the point. The aim was to make citizens look at the coming cuts to vital social programmes as the price they had to pay for their own previous extravagance.

Politicians know the idea of debt carries a moral weight that is almost impossible to fight against. It delivers the debtor into the complete control of the creditor and if the debt can be imposed on a person for actions outside of their control, it can take away the ideological foundations for calling out any resulting injustice. Debt was the rationale by which Greco-Roman armies took slaves; the slaves owed the conquerors, who could have killed them, their lives and so their unending labour was payment for this debt. Debt is the basis on which Christianity demands obedience to God, continued submission is the debt that the sinner owes to Jesus for his sacrifice on the cross. What unites these two examples is that they are, like the best debts, essentially unpayable. Now we face another unpayable debt, the current sovereign debts of nation-states, which to the lay person seem as infinite as Jehovah, with its figures that rise into trillions of dollars.

Radical Greek Opposition leader Alexis Tsipras  described the global debt crisis as ‘so good that if it did not exist, the elites would have had to invent it.’ The idea that ‘we have to pay our debts’ makes the public reluctantly accept the closing of another library or another cut back in health care. Yet the narrative is disingenuous as politicians never mention that, unlike say a simple bank loan, sovereign debt will never be paid back. It is not supposed to be paid back, it is the motor via which all modern economies function. Apart from one year, the U.S the federal government has been in debt every year since 1776! The ‘communal sacrifice’ of austerity is not meant to pay back the debts of the nation, it is an ideological move aimed at crystallizing the structural inequality of the neoliberal era by breaking down the state funded step-ladders that had helped people improve their lives.

In his excellent book 5000 years of Debt, David Graeber undermines the authority of debt that Reinhart and Rogoff promote. He describes how throughout history, debt forgiveness has ended poisonous circles of suffering. The Occupy Strike Debt programme has began doing this on a small scale by buying up tens of thousands of dollars of personal debt from creditors and forgiving the debtors free of charge. However, despite Reinhart and Rogoff’s work being weakened, this latest hiccup to the proponents of global austerity is likely to have little impact on their policy ideas; ‘we are cutting to pay back your debt’ is simply too good of an argument to give up. Despite this embarrassing revelation and the continued failure of austerity in Europe these, Reinhart and Rogoff have defended their original position. This is because their ideas are less about details and more about providing a framework to justify the pain that everyday people are enduring.

And they would have got away with it too if not for that pesky kid.

(Image via Shutterstock)

By Beverly Bandler

Regarding the Austerity Scandal, I wonder if you are as angry as you should be. I am outraged. This is indeed a significant story that the corporate mainstream media appears to be ignoring.

One reader tells me that he has the impression that the Reinhart-Rogoff scandal has not been widely reported. He says Jon Stewart had Thomas Herndon on his program. Herndon is the graduate economics student who revealed the flaw in the R&R data. Herndon said the error in Reinhart-Rogoff’s spreadsheet was so blatant that it was spotted by his girlfriend, a sociology student. (I don’t like to use exclamation points, but this deserves a couple: !!)

This scandal is important because the economic theory presented by Carmen Reinhart and Ken Rogoff was central to the Republican-led demands for sharp austerity even at the cost of continued high and painful unemployment. The two economists claimed that their data proved that government debt equal to 90 percent of GDP would strangle the economy, thus justifying extreme steps to bring the debt down immediately.

However, other economic studies of the same question came up with dramatically different results, showing continued GDP growth at that level of debt. Finally, Reinhart and Rogoff made their data available to a team at the University of Massachusetts at Amherst and the mystery was solved. The two economists had made an obvious computation error. In other words, the austerity hysteria that had fueled Republican insistence on slashing spending was driven by a botched economic analysis.

The Washington elite had made major economic policy decisions that have affected every single American based on a single paper that had errors so blatant that the mistakes were spotted by a sociology student? The elite policymakers then ignored all the reliable economics work of practically every reputable economist in the nation who questioned the Reinhart-Rogoff study?

Would you want a surgeon to do your brain surgery based on one new technique that had never been vetted and was seriously questioned by other surgeons, including some of the best in the field? But that is how the Republicans and some “deficit hawk” Democrats slashed spending and killed proposals to invest in infrastructure, fund research and rehire laid-off police, firefighters and teachers. God help us!

Not only political “elites,” but financial elites bought into the one paper. Bill Gross, manager of the world’s largest bond fund for PIMCO, in 2010 “warned that UK debt levels were too high, leaving gilts ‘resting on a bed of nitroglycerine,’” basing his warning on the widely cited R&R paper now under fire for “possible statistical errors.”

Gross has changed his tune: he is now criticizing efforts by Britain and much of the Euro Zone to cut debt rapidly with severe austerity measures, warning that such action risks stifling recovery. “The UK and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term is the way to produce real growth,” he stated to the Financial Times, “It is not. You’ve got to spend money.”

Slate business and economics correspondent Matthew Iglesias writes “the academic research bolstering the austerity drive was confused, at best.” It is important to remember that the “academic research” to which he refers was one paper, one research study.

Does this mean the political and financial elites have never read the economic history of the Depression? Updated and related empirical studies of same? That they have never read Paul Krugman, Christina Romer, Joseph E. Stiglitz and a host of other prominent economists and instead chose to embrace one paper “as gospel,” not vetting it, not reading the responses to the paper from other economists when it shot out of the gate?

Incredible!

Beverly Bandler’s public affairs career spans some 40 years. Her credentials include serving as president of the state-level League of Women Voters of the Virgin Islands and extensive public education efforts in the Washington, D.C. area for 16 years. She writes from Mexico.

(Originally posted at Consortium News)

The Daily Banter Headline Grab. From Reuters:

The U.S. economy could take a big hit from automatic government spending cuts even if Congress only leaves them in place for a month or two.

The cuts were meant to be so painful that they would force Congress to find a more thoughtful way to tighten the budget.

But many analysts assume they will take effect as scheduled, forcing federal offices to furlough some of their 2.8 million workers and trim spending on everything from paper clips to missiles.

It is anyone’s guess, however, how long lawmakers will be able to stomach the economic pain. The duration of the austerity measures will determine the force of the blow to the economy. Some analysts think having the cuts in place for more than a few months could trigger a brief recession.

The Congressional Budget Office said on Tuesday the cuts would translate into $42 billion less in federal spending between the beginning of March and the end of September.

If $6 billion in spending is cut in March – which would be the average decline over a seven-month period – economic growth would be stunted by roughly seven-tenths of a percent in the first quarter, said Omair Sharif, an economist at RBS in Stamford, Connecticut.

“You are going to feel the pain right away,” Sharif said.

Welcome to this week’s edition of The Daily Banter Mailbag! Today, Bob, Ben and Chez discuss austerity and Keynesian economics, the tea party and political fisticuffs.

The questions:

1) Do you think the Pan-European strikes and protests, and/or the decisive de-facto rejection of austerity by the U.S. in re-electing Obama two weeks ago will send the message to Europe that Keynesianism is the better path to prosperity instead of endless and punitive austerity and obsessive preoccupation with debt?
– Christopher

Bob: The election of President Hollande in France is sending stronger signals against austerity than Obama’s re-election. One way or another the fiscal cliff negotiations will end up including spending cuts — but the extent of which is uncertain right now. However, if we go over the cliff, there will be both austerity and tax hikes. Short answer to your question: too early to call.

Chez: There were a lot of big words in there. I’m very confused now. Actually, I don’t know how Europe will react, given that it should’ve figured out a long time ago that austerity doesn’t work. Certainly a new round of protests likely won’t convince European leaders since none of the protests up until now haven’t had much impact. As for the American people making the decision to take a pass on strangling themselves, I’m not sure that’ll have much of an effect either. Hold on, let me get a ruling from our resident European. Ben?

Ben: It’s an interesting dynamic Christopher, particularly given Europe has traditionally believed in government intervention in the economy, while the opposite has been true in the States. The situation is now in reverse, and the results are pretty clear when it comes to pulling out of a recession – government stimulus works, while cutting back does not. Does the re-election of Obama send a message to Europe? I’m not sure, but President Obama will certainly apply some soft pressure to ensure Europe doesn’t keep going in the same direction as the US is directly affected by what is happening in Europe. Europe is a major market for its exports, and the US is increasingly worried about the trade gap widening. The situation in Europe isn’t getting any better after round after round of austerity measures, so it’s in America’s interests to encourage Europe to get in line with more government spending to revive their economies.

2) What are the odds moderate Republicans will abandon the Tea Partiers and evangelists and form a third party, trying to capture fiscally conservative Democrats?
– Tony

Bob: None. At least not yet. The Moderate Republicans are inextricably tied to the tea party via the “conservative entertainment complex,” as David Frum called it, and no one in the party would dare piss off Limbaugh and the thousands of others on AM radio and Fox News. Republicans can’t survive without their PR.

Ben: I think you’re seeing moderate Republicans doing that already. Bobby Jindal has already publicly rebuked Romney’s latest 47% comments, and Bill Kristol is calling on support for raising taxes for millionaires (and Kristol is not a moderate by any stretch). The Republicans know they are in deep trouble with regards to Americas’ changing demographics, and they are floundering around trying to figure out what to do about it. It’s going to take one seriously brave moderate to stand up and tell the Tea Party to disappear, and Rush Limbaugh to STFU (that’s internet slang – look it up if you don’t understand), but that has to happen if the Republicans want to remain relevant. Republicans can’t really go any further to the Right, so it’s really the only thing they can do – go for fiscally conservative Democrats by moderating their positions and reigning in the crazies.

Chez: Slim to none. I think if anything it’ll be the other way around — another insurgent uprising from the farthest-right of the party. The Tea Party may be dead, but something new will rise to take its place and once again hold the moderates hostage. But I really don’t think even that’s going to happen. The Republicans will either learn their lesson and tamp down on their fringe — which is unlikely — or they’ll continue to embrace the crazy and fail on a grand scale a good portion of the time nationally.

3) Who would win in a rumble between President Obama and the tag team of McCain and Graham? Condition – the President has to fight while holding Joe Biden on his back.
– Jason

Chez: Can Biden swing?

Bob: Now we’re talking — a Master-Blaster Obama/Biden set-up versus McCain, whose bark is far worse than anything his old man bite could deliver, and Graham who I suppose could pack a mean karate chop. No contest. I’m easily giving this to the Master-Blaster. Of course my Master-Blaster metaphor is merely stylistic and doesn’t intend to connote that Biden is a dwarf or the president is a developmentally disabled behemoth. I’ll stop now.

Ben: That’s not a fight, that’s a massacre. McCain is well into his 70′s and Lindsey Graham is about as macho as Nancy Pelosi. Obama would thrash the pair of them, even with Biden attached to his back and jabbering away. Actually, Biden talking could sway the odds a little….

——

Got a question for the mailbag? Email us at TheDailyBanter@gmail.com!!!

By Bob Cesca: If you haven’t seen the stellar political documentary, The War Room, which follows James Carville and George Stephanopoulos during the 1992 Clinton campaign for president, you should absolutely check it out. There’s one scene in particular that popped into my head yesterday.

In the documentary, Al Gore delivered one of the best stump speeches in recent memory during which he enumerates all of the “ups” and “downs” of the George H.W. Bush presidency. The economy was down, the deficit was up, etc. He ended the speech by saying, “Everything that oughtta be down is up. Everything that should be up is down. They’ve got it upside-down and we’re gonna turn it right-side up!”

The Obama campaign could make a similar case about the president’s record — but in the opposite way. Everything that should be up is up, and everything the oughtta be down is down. It’s simple but effective. For example, these are all 100 percent true:

Job creation is up. Inflation is down. Business profits are up. Consumer debt is down. American auto sales are up. Middle class taxes are down. Prescription drug savings are up. The deficit is down. The stock market is up. Unemployment is down. Consumer confidence is up. Spending growth is down. GDP is up. Wars are down. Home values are up. Bin Laden is down.

There are, of course, other second or third tier indicators that don’t look as positive, but these top shelf factors tell a very positive story. In swing states like Ohio and elsewhere, there are very real signs of steady improvement, and, until last week’s debate, I didn’t think voters were willing to completely reverse course. And reversing course is precisely what Mitt Romney will do by his own admission, categorically repealing all of the president’s initiatives and replacing them with something else. No one knows what the specific replacement programs will be because Romney hasn’t told anyone.

Let’s just call it Romney’s “Secret Plan to Fix the Economy.”

What do we know about this plan?

I don’t know.

Do you?

Romney said that it involved creating more jobs and that the subsequently larger work force would translate into more tax revenue. The additional tax revenue would reduce the deficit along with his array of severe spending cuts including the elimination of the PBS subsidy (which would save the federal government a massive 0.012 percent per year) and a punitively large $618 billion cut to Medicaid, impacting children, the elderly, disabled people and the working poor. Romney insists that deficit reduction would stimulate economic growth, even though deficit reduction and austerity in the wake of a deep recession usually backslides the economy into a second recession. In fact, I challenge any Republican reading this column to name one example from American history when a large tax cut and austerity stimulated the economy following a deep recession. It can’t be done because it doesn’t exist.

Two more problems with Romney’s secret plan. 1) The number of jobs Romney promised to create would’ve been created anyway, according to Moody’s Analytics and the Macroeconomic Advisors, irrespective of Romney’s secret plan. In other words, those jobs will be created even if Romney isn’t president. So his secret plan is basically pointless. 2) Romney’s tax cuts alone would increase the deficit by $5 trillion over ten years, thus obliterating any savings from increased revenue from all of those jobs (that would’ve been created anyway).

This is basically all that we know about his plan. And, oh yeah, the secret plan comes with Romney himself who is evidently capable of charming the dickens out of American voters in spite of lying directly to them at the rate of 27 lies in 38 minutes.

Voters who responded favorably to Romney’s first debate performance don’t realize they’re only responding favorably to one version of Romney. What’s worse, and I assure you, not one of them can name a single aspect of Romney’s secret plan to fix the economy. They were simply well-fluffed by Used-Car Salesman Romney. They probably don’t know about “Severely Conservative” Romney, Empathic Moderate Romney or Massachusetts Pro-Choice Romney. Ultimately, they don’t know who Romney is. Nobody does. They don’t know his core values. They don’t realize that he’s a different Romney every day. This assessment of Romney goes back nearly 20 years when Ted Kennedy referred to Romney’s abortion position as “multiple choice.” But, you know, smile and smile and be a villain. We know he’s a pathological, cynical liar and a perpetual shape-shifter whose “secret plan” will, in reality, end up being exactly the same as the George W. Bush plan for the economy.

Romney has a plan which he refuses to talk about. Appropriately enough, his plan is just as ambiguous as the hypothetical construct known as Romney.

Will voters choose this murky, elusive agenda over proven successes throughout major sectors of the economy? This week’s polls suggest maybe, simply because he didn’t choke on his own vomit and turned lying into an art form for 90 minutes on national television. I’ve been doing this a long time and it continues to confound empirical thought to know that voters will gladly turn down proven success in lieu of a well-placed hand gesture or a grinning zinger from the mouth of a white corporate CEO whose business practices, along with what little we know about his plan, are collectively indicative of the greed and malfeasance that caused the economic crash in the first place.

One thing’s for sure: Romney knows how to scam and hustle voters who are too naive and ignorant for their own good. And they will collectively damage everything positive that’s occurred since the Great Recession.

Paul Krugman sums up the German economic policy of austerity that is causing immense misery throughout Europe:

Why do it, then? Partly it’s because Europe is still operating on the false theory that this is essentially a fiscal issue; partly it’s to assuage the Germans, who remain convinced that those lazy Southern Europeans are getting away with something. In effect, the policy is to inflict pain for the sake of inflicting pain.

Which brings us to the question: can this go on? When do the people of the afflicted economies say that they can bear no more?

And as Krugman notes, the protests erupting in Greece and Spain show that that time is coming very quickly.

It is easy for bureaucrats and bankers to speak about economic policy in terms of numbers and financial equations. They do not have to live under the brutality of their own policies, so are removed from the human impact of it. Austerity as a philosophy is applied to ‘cleanse’ markets of their sins, to restore balance to its function and work by itself. Outside help is not accepted because markets, in the eyes of the austerity advocates, are perfect. If there is disharmony, they must be allowed to heal by themselves, even if there is enormous pain because of it.

As Keynesian economics shows though, that pain is not necessary. Debt can be accrued in the short term while growth is secured making recovery far less damaging and lengthy. Government spending provides the groundwork for sustained growth and job security. Without it, there is just pain and more austerity. That is until people won’t accept it any more and they demand their governments take action rather than leave them to the dictatorship of the market.

The Daily Banter Headline Grab. From Reuters:

MADRID (Reuters) – Protesters clashed with police in Spain’s capital on Tuesday as the government prepared a new round of unpopular austerity measures for the 2013 budget to be announced on Thursday.

Thousands gathered in Neptune plaza, a few meters from El Prado museum in central Madrid, where they formed a human chain around parliament, surrounded by barricades, police trucks and more than 1,500 police in riot gear.

Police fired rubber bullets and beat protesters with truncheons, first as protesters were trying to tear down barriers and later to clear the square. The police said at least 22 people had been arrested and at least 32 injured, including four policemen.

As lawmakers started to leave the parliament shortly after 2100 GMT in official cars or by foot, a few hundred people were still demonstrating in front of the building. Most dispersed shortly afterwards.

The protest, promoted over the Internet by different activist groups, was younger and more rowdy than recent marches called by labor unions. Protesters said they were fed up with cuts to public salaries and health and education.

“My annual salary has dropped by 8,000 euros and if it falls much further I won’t be able to make ends meet,” said Luis Rodriguez, 36, a firefighter who joined the protest. He said he was considering leaving Spain to find a better quality of life.

The Daily Banter headline grab (from the Independent):

The Bank of England today appeared to rule out an early cut in interest rates to boost the flagging economy despite slashing its growth forecasts for this year to zero.

In its quarterly inflation report, the Bank admitted that it now expected the economy to grind to a halt in 2012 – compared to its prediction in May of 0.8 per cent growth.

But the Governor of the Bank of England suggested it was not considering cutting interest rates further from their current historic low of 0.5 per cent warning that the move could be “more counterproductive than beneficial”.

Announcing its revised forecasts Sir Mervyn King blamed the crisis in the eurozone, which he described as “a saga that goes on, and on, and on”, as the main cause of the slowdown.

But he also said the Government’s tough austerity measures had been a drag on growth. He added that the extra bank holiday in June for the Diamond Jubilee celebrations had reduced output by around 0.5 per cent.

“The underlying picture is that output has been at best broadly flat over the past two years, and has continually disappointed,” he said.

“The overall outlook for growth is weaker than in May reflecting downside news in the near term and, in the medium term, the possibility that the weakness in output and productivity growth that we have seen since the financial crisis persists.”

This is getting quite boring, repeating over and over and over again that austerity measures are hurting rather than helping countries mired in recession. Q2 GDP growth figures came in for the UK economy at a shocking -0.7 per cent, far worse than predicted (the general consensus was a prediction of -0.2%) meaning that the economy has had three successive quarters of negative growth. Said leader of the opposition Ed Miliband:

We’re in deep recession as a country, I’m afraid because of this government’s economic project. I think that today marks the death knell for their economic plan.

I don’t see how you can have three quarters of negative growth and have an economy which is smaller than when you took over and see this as anything other than a failure.

It has been a failure and frankly, they should wake up to the fact it has been a failure.

David Branchflower in the New Statesman was more scathing:

The coalition government took over an economy that was growing and by its inept policies it has killed growth stone dead. In interviews today, the Chancellor claimed he was “relentlessly focused” on sorting the economy out in the same way (presumably as King Canute was also determined to keep the tide back?). This, as ever, was worthless drivel because it is clear to all that the government’s economic policy of austerity has failed and they have no clue what to do.

The problem with strict adherence to ideology is that it is incredibly difficult to accept being wrong. The unyielding faith in markets and deregulation is a immovable part of conservative ideology these days – and once that goes, there isn’t anything left really. Modern Tories are usually socially liberal, so reneging on free market capitalism would essentially make them Lib Dems, or worse yet, part of the Labour Party.

This really should be the end of austerity as economic policy in the UK as the evidence is now so overwhelming the Tories are beginning to look like creationists.