Limp economies

By now, United States and Western Europe, together with Japan and China the strongest economies in the world, were supposed to be well beyond the reach of the tidal waves set off by the 2008 financial earthquake. But that is hardly the case on either side of the Atlantic.

Hundreds of millions of people continue to feel the economic pain caused by the lingering effects of a crisis that establishment economic gurus had said could never happen in the crisis-proof, new, free-trade, globalized capitalist economy. Worse, today much of the hardship still being experienced by people from Athens, Greece, to Athens, Georgia is largely the result not of the initial economic shock but of the way the tiny elite of major global economic actors chose to deal with the aftermath of the 2008 debacle.

Many of our current troubles are not in our stars or the result of the “invisible hand” of the market. The fingerprints of the International Monetary Fund (IMF), the European Central Bank (ECB), the European Union (EU), the right-leaning German Chancellor Angela Merkel, the obstructionist Republicans in the U.S. Congress, and even the Obama administration are all over the scene of this crime.

The Great Depression, along with more recent cases like the Argentine crisis, have shown that austerity for the masses via sharp cuts in government spending is the worst policy one can follow in the face of a plummeting private sector.

Yet, country after country has chosen to drink the cult of austerity’s lethal Kool-Aid – or have been forced to imbibe it by more powerful countries to which they are indebted. The results, predictably, have been awful for most people but not so bad for the bankers bailed out by their governments or for rich Wall Street investors.

The latest economic data for the United States show that jobs and the economy are still growing at a snail’s pace, an announcement that prompted…a rise in the stock market. Such is the disconnect between the sweat economy in which most people toil and the sweet economy of financial speculation that emerged virtually unscathed from a catastrophe of its own creation.

As a result of the halting pace of growth, employment in the United States is today 2.1 percent below 2007. In contrast, jobs in Germany grew by 5.8 percent during the same period.  Sweden, Canada, Australia, and even economically hard-hit Britain also outpaced the United States in job creation. Among the rich nations, the United States beat out only the woeful economies of Japan and Italy. And, unlike the poorer economies of Greece, Spain, Ireland, Italy and Cyprus, the United States was not driven to austerity, kicking and screaming, by outside forces.

No, here, the triumphant ideology of mindless deregulation, favored both by the Clinton and George W. Bush administrations, made the housing bubble possible. When it imploded, Americans lost trillions of dollars in home equity, sending the economy into a vicious downward spiral.

The bursting of the real estate bubble not only devastated employment in the key construction sector but hit the economy as a whole hard because it had long been kept afloat by consumers using their until-then-ever rising home equity as a virtual credit card. Inevitably, consumption dropped sharply, which caused employers, who now had fewer customers, to lay workers off, which led to a further drop in consumption, and so on and on.

The treatment for a patient losing blood is to stem the flow and provide a transfusion. The treatment for an economy bleeding jobs is for the government to provide a transfusion in the form of increased spending. A combination of Republican intransigence, bad advice from Clinton-era economic advisers in the Obama administration, and a lack of audacity on the part of Obama himself initially led to an economic stimulus package far too small to compensate for the economy’s gaping wounds. Then, since 2010 when Republicans took control of the House of Representatives as well as many state governments, they have unceasingly pushed for even less government spending. That’s like applying leeches to a bleeding patient. It’s a miracle that the U.S. economy has at least managed to limp along.

The European case is more complex given the economic and cultural differences between countries and the fact that most countries no longer have their own currency. There, austerity mainly has been imposed by the rich creditor nations on the poorer debtor nations. The result has been that some countries and regions are suffering worst economic conditions than during the Great Depression, resulting in great political and social instability not to mention human suffering.

So disastrous have been the consequences of the policies the so-called troika – the IMF, the EU, and the ECB – strong-armed Greece into adopting that recently even one of the trio has expressed second thoughts. In a recently released internal report, the IMF has acknowledged that it should have known the debt deal the triumvirate forced upon the Greeks would actually increase the debt while gravely damaging the Greek economy.

Indeed. Since the troika extended its helping hand to Greece in 2010, unemployment in that country has risen from 12.5 to 27 percent. With help like that…

It’s better late than never. But the IMF report fails to fully admit the troika’s responsibility in the Greek disaster and continues to defend the overall thrust of the austerity policy. Meanwhile, the other two partners are even more unrepentant.

Thus, despite the depth and duration of the economic limbo that started in 2008, neither the United States nor Europe seems ready for the kind of fundamental change of course needed for a real recovery. In fact, on both sides of the Atlantic key economic decision makers are vowing to stay the course or, in the case of the GOP here, to make the situation worse through draconian spending cuts. Clearly, the transatlantic economic elites have a very high threshold for other people’s pain, namely ours.